The Idaho Budget Primer

Share this Report

Share on facebook
Share on twitter
Share on email

Budget Primer
Idaho Center For Fiscal Policy
Table of Contents
Introduction ………………………………………………………………………………………………………………..3 Idaho’s Budget Process—Inside The Black Box…………………………………………………………………4 Funds…………………………………………………………………………………………………………………..6 Objects…………………………………………………………………………………………………………………8 Who Produces Idaho’s Budget? ………………………………………………………………………………………9 Is There A Dictionary For Idaho’s Budget?…………………………………………………………………….. 10 Where Does The Money Come From?……………………………………………………………………………. 10 General Fund ……………………………………………………………………………………………………… 10 Dedicated Funds …………………………………………………………………………………………………. 13 Federal Funds …………………………………………………………………………………………………….. 13 Other Funds……………………………………………………………………………………………………….. 14 Where Does The Money Go? ……………………………………………………………………………………….. 15
Education ………………………………………………………………………………………………………….. 15 Public Schools……………………………………………………………………………………………….. 17 Higher Education ……………………………………………………………………………………………. 18
Health & Human Services………………………………………………………………………………………. 20
Are There De ciencies In Idaho’s Budget Process? ………………………………………………………… 21
Inaccurate Budget Baseline ……………………………………………………………………………………. 21 Inadequate Time Horizon……………………………………………………………………………………….. 21 Incomplete Expenditure Reporting …………………………………………………………………………… 22 Insuf cient Fiscal Impact Analysis …………………………………………………………………………… 22 Inconsistent Labeling……………………………………………………………………………………………. 22
What Are Today’s Big Budget Issues? …………………………………………………………………………… 23 Appendix 1: DFM Citizen Guide ………………………………………………………………………………….. 25 Appendix 2: LSO Budget Process………………………………………………………………………………… 28
Appendix 3: Department/Agency/Program Codes For DFM and LSO Budget Development
System (Appendix 5 in Budget Development Manual)…………………………………………………….. 34
This document is intended as a guide to understanding Idaho’s state budget. While it can’t make a complicated budget (and associated process) simple, it can provide a framework for penetrating that complexity and giving the average citizen an understanding of how Idaho’s budget works and what is at stake.
The state’s budget is important because it touches all Idahoan’s lives, in ways both direct and indirect. Over a third
of the total state budget goes toward education, and that spending impacts everyone regardless of whether they have children in public school, are attending a public university, or hire employees from a workforce whose skills and knowledge depend in large measure on the quality of the public education system.
About a third of the total state budget goes toward health and human services. You may not need a public program such as Medicaid to help pay for your health care needs, and you may not have the misfortune to be dealing with seri-
ous disabilities that require around the clock care, but it’s pretty likely that you do rely on (and hopefully, appreciate) public health programs that protect all
of us from the ravages of communicable diseases, and insure a high quality of the air we breath, the water we drink, and the food we eat.
There are many more functions of state government we’ll dive into in more detail later. We’ll also look at another important aspect of the budget – how we pay for the services that are provided through state government programs.
Idaho All Fund Expenditures, by Functional Category
FY 2013, Total = $6,957.3 Million 12.6% of Idaho Personal Income
your purchases, income tax on your earnings, and property taxes on your home and business property. It is not “fee for service.” It is a public service paid for with our tax dollars. And in the case of public schools, that principle
is ensconced in Article 9, Section 1 of Idaho’s Constitution: “…it shall be the duty of the legislature of Idaho to establish and maintain a general, uniform, and thorough system of public free common schools.” Free doesn’t mean it costs nothing to run Idaho’s public schools. Free means we can’t be charged admission to send our children to Idaho’s public schools.
Throughout the state budget, choices are being made. How money is raised, how much money is raised, what money is spent on, and how it is spent entail enormous public policy decisions. It may seem daunting, but it behooves every responsible citizen to pay attention to the state’s budget, understand the public policy choices it re ects, and hold their representatives accountable for the decisions they make.
5.2% $1,628.7
$2,409.8 34.6%
Education Function
Health & Human Services Function
$2,557.8 36.8%
Public Safety Function
All Other Agencies/Functions
Source: Division of Financial Management, FY 2015 Executive Budget
It’s easy to lose sight of the fact the services we often take for granted must be paid for, or in the jargon of public budgeting, must be funded. Unlike the private sector where we have straightfor- ward transactions (you give me a widget, I give you money in payment), there can be a long distance between the delivery of a public service and the payments that ‘fund’ that service.
Going back to the part of the budget that is for education, you receive the service (in the case of public schools) by registering and sending your children to the elementary school down the street. You (and others) pay for that service by paying sales tax on
Idaho’s Budget Process – Inside The Black Box
Idaho’s budget is the state’s nancial blueprint for the money it will spend on its many and varied programs. It is primarily focused on state programs and spending, but it does also intersect with both the federal government and lo- cal governments. Over a third of all the money spent in Idaho’s budget comes from the federal government, and about 8% of Idaho’s General Fund revenue sources go directly or indirectly to local government.
A state’s budget is by its nature a complicated document. State governments have a very wide range of responsibilities, with many departments and programs. There are very many participants in
a state’s budgeting process. There is a lot of jargon the casual observer may not understand. The budget process has a long and overlapping temporal ow. Work on a given scal year’s budget starts well over a year before the day the scal year begins. And the money (revenue) used to fund budgets comes from a wide range of sources, with a variety of limits and restrictions attached to those revenue sources.
Another source of complication arises from the
fact that Idaho’s two main budget agencies – the Legislative Services Of ce (LSO) and the Division
of Financial Management (DFM) – operate on different de nitions of what is actually included
in their budget documents. That’s right, the two main budget of ces produce Idaho budget documents that don’t present the same numbers. LSO produces budget documents that only
include the parts of program budgets that are annually appropriated by the Legislature. DFM produces budget documents that include both annually appropriated and some, but not all, continuously appropriated parts of program budgets.
Since the budget documents produced by DFM are more comprehensive in the spending they cover, all references to budget gures in this Primer are based on the broader DFM de nition unless expressly noted. This de nitional difference does not apply to the General Fund, since all General Fund spending is subject to annual appropriations.
A common misconception is that states must always balance their budgets – revenues must equal expenditures. It is true that most states have what are loosely called “balanced-budget provisions,”
often in the form of constitutional restrictions. What these provisions usually boil down to is that a state may not de cit spend – it may not borrow money to fund its operations in a given scal year. It can certainly spend less than the revenue it brings in, and if it does so, it will then have reserves that can be spent in future scal years when revenue falls short of expenditures.
Lets say a state has higher than expected revenues when its economy is booming. The extra revenue (above planned expenditures) can be stored in an account, often referred to
as a rainy-day fund, and held in reserve for future scal years. Later, when revenue underperforms expectations and is insuf cient to meet planned spending the reserves can be used to ll the gap.
If a state nds itself in a situation where revenue underperforms expectations and reserves are insuf cient to meet spending needs within the scal year, there are several ways to deal with the situation. Authorized expenditures can be reduced through nega- tive supplementals, thereby cutting programs. Revenue can be increased by increasing tax rates
or imposing tax surcharges. Or bill payments can be deferred beyond the end of the scal year, effectively kicking the can down the road. At various times in the past, Idaho has done all three.
Standing between revenues sources and spending programs are nancial structures called funds. Funds are accounts that money goes into from revenue sources, and out of to pay for the goods and services government supplies. There are literally dozens of funds associated with Idaho’s budget, but for simplicity they can be (and are) divided into four broad categories: General, Federal, Dedicated, and Other.
One of the common misconceptions is that states must always balance their budgets– revenues must equal expenditures.
Idaho All Program Expenditures, by Fund Category
FY 2013, Total = $6,957.3 Million
$840.0 12.1%
$2,646.3 38.0%
General Fund
At the other end of the spectrum, the Department of Health and Welfare (and its 25 distinct programs) make up just part of the Health and Human Services Goal. Besides the Department of Health and Welfare, this broad functional category of state spending includes the Catastrophic Health Care Program, the Public Health Districts, and the Independent Living Council.
As another example, the Department of Agriculture is classi ed as part of the Economic Development Goal, along with the De- partment of Commerce, the Department of Finance, the Industri- al Commission, the Department of Insurance, the Department of Labor, the Public Utilities Commission, Self-Governing Agencies, and the Transportation Department. Within the Department of Agriculture there are 8 programs ranging from Animal Industries and Plant Industries to Administration and Animal Damage Control.
Each program within a department is treated as a separate entity for budget purposes. A complete listing of the programs that make up Idaho’s budget can be found in Appendix 3.
At the program level there are several dimensions associated with the spending side of the budget. One of the dimensions programs are divided into is spending categories called objects. There are ve object categories: Personnel Costs, Operating Expenditures, Trustee and Bene t Payments, Capital Outlays
and Lump Sum. These spending categories allow aggregations by type of spending across programs and goals.
Another important dimension of programs is where the money being spent comes from. A single program may be ‘funded’ by a variety of sources. For example, the Operations Program within the state’s Public Schools receive money from the General Fund, Dedicated Funds, Federal Funds, and Other Funds. A subtle
but important point is that programs are not funded by revenue sources per se (such as the sales tax or income tax), but by a fund – or, as in this case, by multiple funds.
One very important and unique fund cat-
egory is the General Fund. It is the only fund category that consists of just a single account. It is important because a) it receives the bulk of the revenue generated from
Idaho’s sales and income taxes, b) it funds over a third of all state spending, and c) the wide variety of programs that depend on the General Fund are effectively in competition with each other for the limited resources available. Consequently, it is invariably the portion of state spending that receives the most attention when budgets are set.
Important as the General Fund is, it by no means provides a complete scal perspective on state programs. Very few agencies or programs rely exclusively on the General Fund to pay for their operations. In a real sense, the extensive and intensive focus
on the General Fund often obscures what is really happening to state program budgets.
$2,690.8 38.7%
$780.2 11.2%
Dedicated Funds
Source: Division of Financial Management,
FY 2015 Executive Budget
The money going into funds comes from a wide array of sources such as the sales tax, income taxes, property taxes, fuel taxes, license and user fees, transfers from other governments, etc.
Funds are not the same as a revenue source. A fund can have a single revenue source or multiple revenue sources. Likewise, a revenue source can feed into a single fund
or be distributed into multiple funds. The
General Fund (a special fund we’ll look at much more closely) receives most (about 95%) of its revenue from the individual income tax, corporate income tax, and sales tax. But not all of these General Fund revenue sources go to the General Fund. A small portion of income taxes go to the Permanent Building Fund, and a fairly large share of sales taxes go to a variety of other funds – the Permanent Building Fund, the Water Pollution Control Fund, the Sales Tax Ag Property Tax Relief Fund, and a local government Revenue Sharing Fund.
On the spending side of the budget, there are
multiple dimensions. We normally think of
different departments when we think of the functions of government – the Department of Health and Welfare, the Department of Agriculture, etc. These broad agencies are broken down into programs (the smallest functional elements of the budget) and added together into goals (the half dozen broad functional classi cations used in Idaho’s budget).
For example, the Department of Health and Welfare (DHW)
is divided into 25 separate and distinct programs. Medicaid, which is in DHW and usually referred to as a single program, is actually divided into 4 distinct programs – Administration and Management, Basic Medicaid Plan, Enhanced Medicaid Plan, and Coordinated Medicaid Plan.
Federal Funds
Other Funds
Idaho Public School Spending by Fund Category
FY 2013, Total = $1,871.9 Million
Another important distinction embedded in the details of the state budget is how the money is spent. Public Schools and Medicaid illustrate this point nicely: in the case of Public Schools, most of the expenditures are for salaries and bene ts of teachers and administrative staff that are employees of the program (in this case, Idaho’s school districts). Government both pays for and provides the service.
In the case of Medicaid, most of the expenditures are for what are known as Trustee and Bene t Payments (in this case, payments to private health care providers) on behalf of the Medicaid recipients. Government pays for the service, but the private sector provides the service.
The state’s prison system is an interesting hybrid. Most of Idaho’s correctional facilities are operated and staffed by state employees (i.e., government both pays for and provides the service), but until recently a few were operated and staffed by private corporations (i.e., government pays for the service, but the private sector provides the service). Either way, the Idaho public pays the cost of operating and maintaining the prisons. That’s true even if Idaho contracts with other states or private contractors to house Idaho inmates outside of Idaho. But in those cases, there is a very real and negative economic consequence to Idaho, since Idaho tax dollars are being spent elsewhere (wherever the out of state prison is located) and elsewhere is where the multiplier occurs. If you want Idaho to have a larger economy, that’s not a very effective way to get there.
Lets explore the Fund and Object dimensions associated with Idaho’s budget a bit more closely:
The General Fund is the fund category that by far receives the most attention. It is actually a single fund (all the other fund categories consist of many different individual funds) that receives revenue primarily (but not exclusively) from the sales and income taxes, and is spent primarily (but not exclusively) on the broad government functions (i.e., Goals) of Education, Health and Human Services, and Public Safety.
Idaho General Fund Expenditures
FY 2013, Total = $2,690.8 Million
$238.5 12.7%
$69.3 3.7%
$276.0 14.7%
General Fund Dedicated Funds
$1,288.1 68.8%
Federal Funds Other Funds
Note: Public Schools includes State Department of Education Source: Division of Financial Management, FY 2015 Executive Budget
Public Schools, for example, are primarily funded by the General Fund, but also rely heavily on Dedicated Funds (the earnings from endowment lands, occasional transfers from reserve funds, etc.), Federal Funds (aid for children with disabilities, free and reduced price meals, etc.), and Other Funds (supplemental property tax levies, bond levies, etc.).
Even though public schools pay for about two-thirds of their spending with money received from the state’s General Fund, you really have to look at their spending from all funds to get a complete and accurate picture of the nancial condition of public schools.
Medicaid is another example where the General Fund is a major element (and indeed, a driving element), but only a partial element. Because of the program’s design, every dollar of state General Fund revenue that is allocated to Medicaid is matched by approximately two and one-third Federal Fund dollars. If the state reduces eligibility for the Medicaid program, or cuts the services provided to eligible individuals, it saves state General Fund dollars AND automatically foregoes the associated federal matching dollars.
To see how this works, here’s an example: Cutting one million General Fund dollars from Medicaid frees up that amount for other General Fund programs or tax cuts (roughly a wash from Idaho’s overall economic perspective), but it also takes $2.3 million of Federal Funds away that otherwise would have come to Idaho, but won’t. That’s not a wash. It is a $2.3 million direct loss to Idaho’s overall economic output.
In 2011 Idaho actually cut $35 million General Fund dollars from Medicaid services, for a total reduction in Medicaid services of over $100 million, and a direct loss to Idaho economic output of over $70 million. With economic multipliers factored in, the combined direct and indirect loss to Idaho’s overall economic output was probably at least twice that amount,
or over $140 million.
$259.5 9.6%
$639.0 23.7%
$147.3 5.5%
$1,644.9 61.1%
Public Safety Function
All Other Agencies/Functions
Education Function
Health & Human Services Function
Source: Division of Financial Management, FY 2015 Executive Budget
Idaho Federal Fund Expenditures
FY 2013, Total = $2,646.3 Million
Idaho Dedicated Fund Expenditures
FY 2013, Total = $780.2 Million
$394.3 14.9%
$270.1 10.2%
Education Function
Health & Human Services Function
7.4% $268.6
$1,502.9 56.8%
Dept. of Transportation Dept. of Labor
All Other Agencies/Functions
$300.7 38.5%
Education Function
Health & Human Services Function
10.3% $68.7
$81.2 10.4%
Dept. of Transportation
All Other Agencies/Functions
$248.9 31.9%
$14.2 0.5%
Public Safety Function
Source: Division of Financial Management, FY 2015 Executive Budget
Public Safety Function
Source: Division of Financial Management, FY 2015 Executive Budget
(limited to paying expenses incurred by the bene ciaries of the endowment). There are many speci c Dedicated Funds. They usually (but not always) have an earmarked revenue source or sources.
Some Dedicated Funds are restricted by constitutional provisions (the State Highway Fund is a good example). Others are restricted by statute or custom, and serve as more of an accounting convenience (the Permanent Building Fund is a good example). Often, Dedicated Funds are seen as a way of ensuring a particular revenue source is perpetually available for a particular spending program. This gives that spending program the advantage of not having to compete each year for the limited resources available in the General Fund. It can, however, subject the program to the vagaries of the Dedicated Fund’s revenue source.
Even though the big-three functional categories (Education, Health and Human Services, and Public Safety) account for almost 80% of All Funds spending, 95% of General Fund spending, and 68% of Federal Funds spending, they account for just 30% of Dedicated Fund spending. One department alone, Transportation, accounts for 32% of all Idaho dedicated fund spending.
Other Funds, the fourth fund category, is similar to the Dedicated category, but different. That sounds like a riddle, and in some ways it is. It also re ects some of the often mind numbing complexity associated with Idaho’s budget processes.
The Other Fund category is found in the Executive budget documents (DFM), but not in the Legislative budget documents (LSO). Huh? That’s right, the Executive and the Legislative budget documents don’t line up. The lack of an Other Funds category in the Legislative budget is one major way this misalignment occurs, but there are others. We’ll leave a more thorough description of the differences to a later section (Are There De ciencies In Idaho’s Budget Process?), but for now we’ll just look at what makes up the Other Fund category.
In FY 2013 the General Fund accounted for 38.7% of total state spending, making it the largest fund category that year. In FY 2013 61.1% of the General Fund went for education spending, 23.7% went for Health and Human Services, and 9.6% went to public safety. The rest (5.5%) went to the remaining three broad functional areas (i.e., Goals) combined: Natural Resources, Economic Development, and General Government.
Federal Funds are the second largest source of state spending, accounting for 38.0% of total state spending in FY 2013. Unlike the General Fund, the Federal Funds category consists of many, many individual funds allocated for speci c purposes – education, health care, transportation, natural resource management, etc. One of the reasons there are so many separate Federal Fund accounts is they are usually accompanied by restrictions on what they can be used for. Having separate accounts helps ensure they will be used properly.
While Federal Funds are used throughout Idaho’s budget, they are most prominent in Health and Human Services (56.8% of all Federal Fund spending in Idaho’s budget), Education (10.2% of all Federal Funds spending), and two departments in the Economic Development Goal: the Transportation Department (10.2% of all Federal Funds spending), and the Department
of Labor (14.9% of all Federal Funds spending). The rest of Economic Development, Natural Resources, and General Government account for just 7.4% of Federal Fund spending in Idaho’s budget. And Public Safety is a mere 0.5% of Federal Fund spending in Idaho’s budget.
Dedicated Funds are a smaller category (11.2% of total state spending in FY 2013) of state funds that are characterized by being limited in terms of what they can be used for. Examples include the State Highway Fund (limited to highway-related expenditures), the Permanent Building Fund (limited to paying for capital costs and maintenance associated with the state’s buildings), and the Public School Permanent Endowment Fund
Idaho Other Fund Expenditures
FY 2013, Total = $840.0 Million
budget documents are consistent), but it leaves out very large amounts of continuously appropriated spending supported by a wide variety of revenue sources, including federal grants and con- tracts, auxiliary enterprises, and other student fees. This is clearly not consistent with the treatment of other programs in the Execu- tive budget such as the Public Schools and Community Colleges.
The term ‘object’ is budget jargon for an expense category. In Idaho’s budget process there are four broad object categories, and a fth “catch-all” category. Here’s a brief description of the object categories:
Personnel Costs (PC) are by far the largest component of overall state expenses. This “object” represents dollars paid to state employees in the form of wages and bene ts. However, this object category does not represent all dollars paid to state employees, since some spending is put into the ‘Lump-Sum’ category (in- cluding almost all the Public Schools budget) and it therefore ex- cludes large amounts of wages and salaries from the PC category.
Operating Expenditures (OE) are expense items such as rent, utilities, supplies, contract services, and so forth. Again, the use of the ‘Lump-Sum’ category renders this category incomplete on a statewide basis.
Capital Outlay (CO) is the expense category that re ects expen- ditures on long-lived “things” such as land, structures, vehicles, computers, and many other types of equipment and machinery. Ditto on the impact of the ‘Lump-Sum’ category.
Trustee and Bene t Payments (T/B) are expenses that are paid to bene ciaries of public services either directly (i.e., unemployment bene ts, food stamps, etc.) or indirectly (i.e., Medicaid payments to health care providers, etc.) And one more time, ‘Lump-Sum’ can distort the amount reported in this category on a statewide basis.
Lump Sum is a catch-all category that is used when the appropriation doesn’t restrict the types of expenditures that can be made, just the amount. The spending that actually occurs will fall into one of the four speci c categories, it just isn’t speci ed in advance, and is often not speci ed after the fact. About half of all General Fund spending goes to Public Schools, and virtually all is classi ed as Lump Sum, even the historical data.
As mentioned, a problem arises when spending is allocated to the Lump Sum object category, in that it renders the totals of the four speci c object categories incomplete at the aggregate level. For example, when large appropriations such as Public Schools and/or Colleges & Universities are classi ed as Lump-Sum, the statewide totals for speci c object categories end up leaving out those departments and/or programs, and are therefore inaccurate when it comes to statewide gures for Personnel Cost, Operating Expenditures, Capital Outlay, and Trustee and Bene t Payments.
$6.1 0.7%
$71.1 8.5%
$199.2 23.7%
Education Function
Health & Human Services Function
$563.6 67.1%
Public Safety Function
All Other Agencies/Functions
Source: Division of Financial Management, FY 2015 Executive Budget
In principle, Other Funds are buckets of money that are not federal and are not subject to annual appropriations by JFAC. They are reported in the DFM budget documents in an attempt to provide a comprehensive accounting of all spending by state programs. They are left out of the LSO budget documents because they are not part of the spending decisions the legislature must make each year. That’s not to say the legislature does not control the expenditures of Other Funds. It just does so in the form of continuing appropriations that don’t require annual legislative action.
Community Colleges provide an example of spending supported by Other Funds that shows up in the DFM budget documents
but not in the LSO Budget documents. Because the spending supported by the property tax, tuition, and fee revenue raised by Idaho’s Community Colleges are not subject to annual appropriation decisions, these spending dollars do not appear in the LSO budget documents. In FY 2013 the Legislative budget shows total spending for Community Colleges at $28.3 million. However, the Executive budget shows total spending for Community Colleges at $102.7 million. The difference ($74.4 million) is the amount of Community College spending in FY 2013 that was from property tax, tuition, and fee revenue that is continuously appropriated.
Public Schools are another example of the differences that arise between the Legislative and Executive budgets due to annually versus continuously appropriated spending. FY 2013 total Public School spending in the Legislative budget is $1,550.1 million. In the Executive budget FY 2013 total Public School spending
is $1,837.6 million. The difference ($287.5 million) is primarily due to Public School spending in FY 2013 that was supported by revenue from property taxes that go into the Other Fund category.
Unfortunately, not all continuously appropriated agency spending is accounted for in the Executive budget. An example is Colleges & Universities, where both the Legislative and Executive budget documents show FY 2013 all funds spending as $447.8 million. This is the annually appropriated amount (hence the Legislative
Who Produces Idaho’s Budget?
There are many players involved in producing Idaho’s budget. Here are the most important ones:
The Governor is responsible for submitting an Executive Budget recommendation to the Legislature each year at the beginning of the regular legislative session. He/she has a staff that assembles the Executive Budget each year. It takes over a year to produce the budget, starting with a document called the Budget Development Manual. The Governor’s budget staff is in DFM (the Division of Financial Management), a part of the Executive Of ce of the Governor.
After a budget is enacted (by the Legislature, see below) the Governor is responsible for executing that budget, i.e., making sure the scal directives of the Legislature are carried out.
Here again, he has a staff (surprise, it’s DFM) to carry out that responsibility. Idaho’s budget is usually enacted by the legis- lature about three months before the start of the scal year it will take effect. Once a budget starts (on July 1, the rst day of Idaho’s scal year) it is in effect for twelve months. During that time it is subject to temporary modi cation by the governor (in the form of executive holdbacks) and/or permanent modi cation by the legislature (in the form of positive or negative supplementals) or the Board of Examiners (spending cuts only).
The Legislature is responsible for actually setting the state budget each year. Budget decisions are initiated by the Joint Finance and Appropriations Committee (JFAC), but must be approved by a majority of both the House and the Senate (and are subject to potential gubernatorial veto). The Legislature also has a staff that is responsible for assembling the Legislative Budget documents and supporting the work of JFAC. That staff is in Budget and Policy Analysis, a part of LSO (the Legislative Services Of ce).
Agencies also have staff that are responsible for assembling agency budget requests that are a combination of agency priorities and instructions handed down from the Governor and the Legislature.
Large agencies typically have a Fiscal Of cer who is in charge of a staff responsible for budgeting functions within the agency. Smaller agencies may have a staff member with other responsibilities assigned to handle budget matters as part of their overall responsibilities. Often smaller agencies depend on their legislative and/or executive budget analysts from LSO and DFM to provide technical assistance in preparing their budgets.
And as in the case of the Governor, agency budget staff perform two distinct functions. First, they develop much of the material that forms the basis of the Governor’s budget recommendation (a planning function), and second, they oversee the proper implementation of the enacted budget within their agency
(an operational function)
Is There A Dictionary For Idaho’s Budget?
There is not a single, de nitive source of de nitions for all the specialized terms that surround Idaho’s budget process. It is not an exaggeration to refer to a dictionary, because there are so many acronyms and words that have specialized meaning in the context of Idaho’s budget process.
And it doesn’t necessarily help to be familiar with another state’s budget process. While there are many similarities, each state’s process is unique and it would be a mistake to think that know- ing one state’s budget process translates to knowing another’s.
Both DFM and LSO have web-based descriptions of Idaho’s budget process, and they are included here as Appendix 1 and Appendix 2, respectively. DFM’s Citizen Guide does include a de nition section that explains many of the specialized terms used in Idaho’s budget process.
Also included is Appendix 5 from the Idaho Budget Development Manual – a listing of the Department/Agency/Program codes used in both DFM’s and LSO’s budget documents. This is important information in that it de nes the level of programmatic detail available in Idaho’s budget. For example, Medicaid is a major element of the Health and Human Services “Goal” that is broken down into four distinct programs: Administration and Management, Basic Medicaid Plan, Enhanced Medicaid Plan, and Coordinated Medicaid Plan.
Here are the primary budget documents by title and source agency, in roughly chronological order of release:
Budget Development Manual DFM Spring, about 15 months prior to start of scal year
Executive Budget, Executive Budget Detail DFM January preceding start of scal year
General Fund Revenue Book DFM January preceding start of scal year
Legislative Budget Book LSO January preceding start of scal year
Budget Activities Summary DFM Month or so after close of legislative session
Legislative Fiscal Report LSO Month or so after close of legislative session
Fiscal Source Book LSO Roughly every two years
Where Does The Money Come From?
Idaho’s budget is funded by revenues that come from a wide array of sources. Most are either state-levied taxes and fees, or various forms of revenue-sharing provided by the federal government. However, some of the revenue that shows up in the state budget originates at the local government level. Perhaps the best example of the latter is the use of local property taxes to fund public schools. Another example is property taxes that go toward funding the state’s community colleges.
Because there are so many different sources of money in the state budget, it is classi ed into four broad categories that
help simplify keeping track of it all. Three of these categories (dedicated, federal, and other) consist of many different funds that are lumped together for purposes of displaying them in the budget documents. Sometimes a speci c fund in one of these categories receives revenue from just a single source, and is used for just a single program, but this is rarely the case.
The fourth fund category, the General Fund, is special in that
it is truly just a single, huge fund. It receives money from a broad range of revenue sources, and that money is spent on a very broad array of public services. Because the General Fund
is where the majority of general-purpose tax revenues Idaho collects are deposited, it receives an enormous amount of attention in the budget process. No other fund is like it. However, when looking at the public services Idaho provides, it can be
a serious mistake to focus exclusively on the General Fund. To get a complete picture of the money available to support public services one must look at all funds (general, dedicated, federal and other) to see the full measure of nancial resources available to programs.
General Fund
The General Fund is made up of revenue from the Individual Income Tax, the Corporate Income Tax, the Sales Tax, a group of taxes on tobacco and alcohol products know as Product Taxes, and a variety of other revenue sources known as Miscellaneous Revenues.
Product Taxes consist of the Cigarette Tax, Tobacco Products Tax, Beer Tax, Wine Tax, and Liquor Surcharge.
Miscellaneous Revenue consists of a dozen separate items, with the largest three being Insurance Premium Tax, Interest Earnings, and Other Departments & Transfers.
A complete breakdown of all the revenue sources underlying the General Fund can be found in the current General Fund Revenue Book published by DFM.
Almost 94% of Idaho’s General Fund revenue comes from the income and sales taxes. When combined with Idaho’s property taxes (they primarily fund Idaho’s local government programs,
Idaho General Fund Revenue Sources
FY2013, Total = $2,750.3 Million
A direct by-product of Washington’s heavy reliance on sales tax is its status of having the most regressive state and local tax structure in the nation. That’s because sales taxes are inherently regressive. By the way, regressive means that people with lower incomes pay a greater share of their income in taxes than people with higher incomes.
Over the past dozen or so years Idaho’s General Fund revenue sources have “shrunk.” That doesn’t mean they’ve declined in absolute terms, but they certainly have in relative terms. If we measure General Fund revenue as a share of Idaho personal income, that measure of Idaho’s scal capacity has declined from 6.1 percent in FY 2000 to just 5.0 percent in FY 2013. That decline in Idaho’s revenue capacity has had a material impact on the state’s ability to fund public services.
For example, while it’s not technically just General Fund,
if we add in Public School Dedicated Funds and property taxes we have a better picture of the full measure of Public School funding in Idaho. This is where it becomes evident what has happened to this critically important program in Idaho over the past roughly dozen years.
During the 1970s, 1980s and 1990s Idaho maintained its overall Public School funding effort at an average 4.4% of Idaho Personal Income. Since FY 2000 Idaho’s effort level has dropped to 3.4% of Idaho Personal Income in FY 2013 –a full percent- age point drop, a 23% decline! When applied to current Idaho Personal Income the drop in effort means Idaho’s public schools currently have approximately $600 million less than they would have if the effort had been maintained.
These cuts in effort have not been without consequences. For example, 39 out of 115 Idaho school districts conduct a 4-day school week, and there are districts that have been forced (by reduced funding) to cut “frills” like music and athletics.
Not only has a steady diet of tax cuts since 2000 failed to boost Idaho’s economy, in the past massive revenue increases to fund public services have not been followed by doom and gloom, but rather by exceptionally strong economic performance.
$49.9 1.8%
$1,109.8 40.4%
Individual Income Tax Corporate Income Tax Sales Tax
$107.6 3.9%
$1,284.4 46.7%
$198.7 7.2%
Product Taxes Miscellaneous Revenue
Source: Division of Financial Management, FY 2015 Executive Budget
but some do go to state purposes such as Public Schools and Community Colleges) you have what is commonly known as the three-legged stool. It’s a way of saying Idaho’s state and local revenue structure is balanced and stable. Balanced because each leg is approximately the same length. Stable because that’s the nature of a tripod.
In contrast, Idaho is surrounded by states that have two-legged stools, a reference to tax structures that are neither balanced nor stable. Every state has property taxes, so that is automatically one leg of each state’s revenue structure. Income taxes are a different matter. Of the 7 states that don’t have an income tax, 3 border Idaho (Nevada, Washington, and Wyoming). Of the 4 states that don’t have a sales tax, 2 border Idaho (Montana and Oregon).
Why is not having one of the major revenue sources problematic? Basically, it means that state will have to put too much emphasis on the other major revenue source it does have. We can see this clearly in the case of Washington, where without an income tax
it has reverted to the highest sales tax burden in the nation. Oregon, without a sales tax, is known for its quite substantial income tax burden.
% 6.0
5.5 5.0 4.5 4.0
Idaho General Fund Revenue
Percent of Idaho Personal Income
Source: Division of Financial Management, FY 2015 Executive Budget
FY1980 FY1981
FY1982 FY1983 FY1984 FY1985 FY1986 FY1987 FY1988 FY1989 FY1990 FY1991 FY1992 FY1993 FY1994 FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015
% 5.0
4.5 4.0
3.5 3.0
Source: Idaho Executive Budget; U.S. Department of Commerce, Bureau of Economic Analysis
In 1965 Idaho enacted a 3% sales tax (it raised what in today’s terms would be $600 million of new tax revenue) to boost education funding, and that was followed by a decade and a half of exceptionally strong economic performance in Idaho. Four years after enacting the 3% sales tax Idaho skipped the 1969 national recession entirely, and a decade later the 1974-75 recession (at that time the worst to hit the U.S. since WWII) was mild in Idaho.
Again in the mid-80s Idaho faced challenges funding public services, especially schools, and a series of signi cant tax increases were enacted in the period 1983 to 1987. The sales tax was increased from 3% to 5%, the corporate income tax rate was increased from 6.5% to 8%, and a new top individual income tax bracket of 8.2% was enacted (up from 7.5%).
The mid-80s tax increases raised approximately $500 million in additional revenue in today’s dollars. Idaho skipped the 1990- 1991 national recession altogether, and a decade later the 2001 recession was quite mild in Idaho.
In 2000 Idaho reversed course and began cutting taxes (and with them, the General Fund revenue stream). Income tax rates were cut in 2000 and 2001, and again in 2012. Business personal property taxes were cut in 2001 and again in 2013. In 2006 equalized public school maintenance and operation (M&O) levies were eliminated with only partial revenue replacement from the sales tax. In 2008 an eight-year phase-in of a ve-fold increase in the Grocery Credit began.
All-told, since 2000 about $500 million (in today’s dollars) has been cut from the revenue stream if we include the public school M&O levy reductions that were supposed to be replaced from
the General Fund. That’s based on adding up the scal impact estimates of enacted legislation, and is an annual impact.
If we look at General Fund revenue as a share of Idaho Personal Income, the numbers are similar. Although General Fund revenue reached a peak of 6.2% of Idaho Personal Income in
FY 2001, the average in the late 1990s was closer to 5.8%. Today the gure is 5.0%, and an eight-tenths of a percent drop is equivalent to approximately $500 million in today’s dollars (.008 x $60 billion = $480 million)
Since 2000 Idaho has gone from being at the forefront among states in economic performance to looking more like the caboose. Among Idaho’s recent economic distinctions are having the highest share of minimum wage jobs, having the lowest overall wage rates, and being second only to Mississippi in our per capita personal income. Since 2006 Idaho has been surpassed by
eight of the nine states that had lower income, and the one that remains behind Idaho (Mississippi) has closed the gap from 10.5 percentage points in 2006 to 1.8 percentage points in 2012. Looking at Idaho’s economic performance today it’s dif cult to make a case that bears out the growth and prosperity claims behind Idaho’s tax cuts. In fact, if anything, Idaho’s experience seems to show the exact opposite.
Idaho Public School Funding
Percent of Idaho Personal Income
1983–1987 Revenue Structure Adjustments
March 1983 June 1983 July 1984 April 1986
Sales Tax from 3% to 4% Sales Tax from 4.5% Sales Tax from 4%
Sales Tax from 5%
Net Increase Approximately $400 Million in FY2012 Dollars
January 1987 Individual Income Tax Added 2 Brackets: From 7.5% to 7.8% on Taxable Income
from $15,000 to $40,000;
From 7.5% to 8.2% on Taxable Income above $40,000
Net Increase Approximately $60 Million in FY2012 Dollars
January 1983 Corporate Income Tax from 6.5% to 7.7% January 1987 Corporate Income Tax to 8%
Net Increase Approximately $36 Million in FY2012 Dollars
Total Increase Approximately $500 Million in FY 2012 Dollars
FY1980 FY1981 FY1982 FY1983 FY1984 FY1985 FY1986 FY1987 FY1988 FY1989 FY1990 FY1991 FY1992 FY1993 FY1994 FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015
2000 – 2012 Revenue Structure Adjustments
January 2000 January 2001 January 2008
January 2012
Individual Income Tax Subtracted 0.1 Percentage Point From Each Bracket And Began In ation Indexing Brackets
Individual Income Tax Subtracted Additional 0.3 Percentage Points From Each Bracket
Individual Income Tax Increased
Grocery Credit From $20 To $100 In
$10 Increments Over 8 Years (Completion Pending)
Individual Income Tax Eliminated Top Bracket (Top Rate Now Lowest Since 1934)
Net Decrease Approximately $250 Million In FY 2012 Dollars
January 2001 Corporate Income Tax From 8.0% To 7.6% January 2012 Corporate Income Tax To 7.4%
Net Decrease Approximately $15 Million In FY 2012 Dollars
January 2001 January 2006
October 2006 January 2013
Ag Personal Property Exempted Property Tax Public School M&O
Levy Eliminated
Sales Tax From 5% To 6% In Swap For Public School M&O Levy
Business Personal Property Exempted Up To First $100,000 Per Business Per County
Net Decrease Approximately $80 Million in FY2012 Dollars
Total Decrease Approximately $345 Million in FY2012 Dollars
Dedicated Funds
There are numerous Dedicated Funds that go to speci c purposes. Highway user fees (fuel taxes and registration fees) are dedicated to paying for highway related expenditures. Hunting and shing license sales fund many of the wildlife management programs in the Idaho Fish & Game Department. An assessment on utility sales is used to fund the Idaho Public Utilities Commission.
Sometimes money is transferred from one fund category to another. For example, when “excess” revenue comes into the General Fund, it may be transferred into the Budget Stabilization Fund, a type of reserve account. When the money in the Budget Stabilization Fund is eventually spent, it shows up in the budget as coming from a Dedicated Fund, even though it originated in the General Fund. This can be both confusing, and make it dif – cult to trace where the money to fund public services originates.
For the most part, Dedicated Funds are treated differently in the budget than the General Fund. In the case of the General Fund, a fairly extensive amount of attention is focused on the revenue side of the fund, and the revenue side doesn’t necessarily
match the expenditure side (i.e., in a year of more General Fund revenues than expenditures, the balance will go up, or down if expenditures exceed revenues). With only a few exceptions (notably, the reserve funds), Dedicated Funds DO NOT get the same revenue-side attention as the General Fund. Expenditures (i.e., program budgets) are the principal place that Dedicated Funds show up in the budget documents. There is no comprehensive separate reporting of Dedicated Fund revenues (i.e., the in ows to the funds), nor of Dedicated Fund balances.
One thing to be on the lookout for is cases where the LSO and DFM budget documents have different dollar amounts in a particular program’s Dedicated Funds. This can be due to either a) some of the Dedicated Funds are continuously appropriated, hence they won’t show up in the LSO budget documents, or b) what are reported as Dedicated Funds in the LSO budget documents are reported as Other Funds in the DFM budget documents (and both are annually appropriated).
In the Dedicated Fund realm, probably the most pressing scal need is for additional Highway Fund revenue. In 2008 and 2009 the Governor unsuccessfully attempted to raise Idaho’s motor fuel taxes. It certainly didn’t help that the 2009 proposal to raise motor fuel taxes was pressed just as the state was feeling the full force of the nation’s nancial crisis and the Great Recession.
After his failure to secure additional Highway Fund revenue in 2009, the Governor has not pursued the issue since. One of the characteristics of the fuel tax component of highway user fees is the tax is denominated in cents per gallon of fuel. This erodes the real value of Idaho’s fuel tax revenue because a) in ation is not captured, and b) increasing fuel economy actually reduces the tax collections per mile travelled. At some point, Idaho is going to have to step up and increase revenues for the maintenance of its roads and bridges.
Federal Funds
Federal Funds come to Idaho from a very wide array of federal agencies and programs, ranging from health care assistance to transportation to wildlife to military activities. Federal Funds almost always come with very speci c restrictions on what they can be used for, and in some cases require state matching funds to determine how many federal dollars will be provided.
Medicaid is an example of a program (actually, several programs) where the amount of Federal Funds provided are directly correlated with the amount of Idaho General Fund dollars allocated to the program. In 2011 the legislature cut $35 million in General Fund dollars from Idaho’s Medicaid program bene ts, with a matched Federal Funds decline of over $70 million, for a total reduction of over $100 million.
As in the case of Dedicated Funds, Federal Funds are treated differently (than the General Fund) in that it is the expenditure side that is reported. There is no coverage of beginning balances, ending balances, or revenue in ows as distinct from expenditure out ows.
This fund category is also subject to potentially large differences between the expenditures reported by LSO and DFM, a result
of the annually versus continuously appropriated distinction. Annually appropriated amounts are re ected in both LSO’s and DFM’s budget documents, whereas continuously appropriated amounts are only re ected in DFM’s budget documents.
All Expenditures by Fund Source
Governor’s Recommendation, FY2015 Total = $7,442.9 Millions Executive Budget Book (DFM)
Other Funds
The Other Funds category is found only in the DFM budget documents, and usually re ects sources of spending that are not subject to annual appropriations, and therefore not in the LSO budget documents, although this is not always the case.
In some cases, spending that is classi ed as coming from Dedicated Funds in the LSO budget documents (and therefore is by de nition annually appropriated) is classi ed as coming from Other Funds in the DFM budget documents. This lack of harmonization between LSO and DFM budget documents adds a layer of complexity to Idaho’s budget process that serves no apparent useful purpose, but does serve to make it substantially more dif cult to understand the content of the state’s budget.
These fund classi cation issues may seem picky, but they have real impacts on the information presented concerning state operations. The following two pie charts show the Governor’s expenditure recommendations by fund source from the LSO and DFM budget documents.
According to LSO, 43.5% of the Executive budget recommendations in FY 2015 are funded by the General Fund, 36.2% by Federal Funds, and 20.3% by Dedicated Funds. According to DFM, 38.8% of the Executive budget recommendations are funded by the General Fund, 37.6% by Federal Funds, 11.3% by Dedicated Funds, and 12.4% by Other Funds.
All Expenditures by Fund Source
Governor’s Recommendation, FY2015 Total = $6,639.8 Millions Legislative Budget Book (LSO)
$2,795.0 37.6%
$2,885.1 38.8%
$839.5 11.3%
$2,885.1 43.5%
Federal Funds
$923.3 12.4%
$2,404.1 36.2%
$1,350.7 20.3%
General Fund
Dedicated Funds
General Fund
Dedicated Funds
Federal Funds Other Funds
Source: FY 2015 Executive Budget, page C-7
Source: FY 2015 Idaho Legislative Budget Book, page 13
Where Does The Money Go?
State programs are divided into six broad functional categories called Goals: Education, Health and Human Services, Public Safety, Economic Development, Natural Resources, and General Government. These functional areas get fuzzy in places, and there are broad areas of overlap.
This is the largest functional area of Idaho’s budget, and can be roughly divided into primary/secondary education (Public Schools) and higher education (Community Colleges, Colleges and Universities, etc).
Overall, the Education function accounts for almost two-thirds
of General Fund Total spending, and almost 4 out of every 10 dollars of All Funds Total spending. Education’s share of state spending has been shrinking in recent years, going from 67.2% of the General Fund budget in FY 2000 to 61.1% in FY 2013. The picture is similar looking at All Funds, where Education’s share has gone from 44.4% in FY 2000 to 36.8% in FY 2013. The FY 2013 All Funds share of 36.8% is the lowest since WWII, and the FY2013 General Fund share of 61.1% is the lowest since at least FY 1970, the earliest year data are currently available.
These shares are not adjusted for the funding swap that occurred in 2006, when then Governor Risch successfully maneuvered
a sales tax for property tax swap through a special session of Idaho’s legislature. The swap was accompanied by a 5% increase in the share of the expanded General Fund that was needed to hold Public Schools harmless. So, Education’s adjusted FY 2013 share of General Fund spending (to make it comparable
All Fund Expenditures by Functional Category
Governor’s Recommendation, FY2015 Total = $6,639,8 Millions Legislative Budget Book (LSO)
A good example is the Department of Commerce. It is classi ed as Economic Development. Colleges and Universities are classi ed as Education. That makes sense on the face of it, but in all likelihood policy decisions relating to higher education are every bit as important for Idaho’s economic performance as decisions relating to the Department of Commerce.
Similarly, Idaho’s budget classi es the Department of Environ- mental Quality as a Natural Resources Goal (along with the Department of Lands, Department of Fish & Game, Department of Water Resources, and Department of Parks & Recreation). While it is true that DEQ is primarily concerned with natural resources – aquifers, streams, watersheds, air sheds, etc.,
the agency’s purpose is to protect public health and safety. An argument can be made that DEQ should be classi ed as either Public Safety or Health & Human Services. The point is the classi cations are in some cases arbitrary and/or ambiguous.
Classi cation issues notwithstanding, let’s take a look at the primary areas of public services in Idaho’s budget. But, just as the share of spending by funding source within Idaho’s budget varies between LSO and DFM, so too does the share of spending by functional category. The following two pie charts compare the LSO and DFM versions of the Executive recommendation:
All Fund Expenditures by Functional Category
Governor’s Recommendation, FY2015 Total = $7,358.8 Millions Executive Budget Book (DFM)
$265.6 3.6%
$408.1 5.5%
$1,110.3 15.1%
$2,629.2 35.7%
$321.1 4.4%
$265.6 4.0%
$396.3 6.0%
$715.2 10.8%
$2,582.6 38.9%
Education Function
Health & Human Services Function
Public Safety Function
$326.6 4.9%
According to LSO, Health & Human Services accounts for 38.9% of total Idaho spending, Education comes in at 35.4%, and all the rest account for 25.7%. But in the DFM Budget documents Education accounts for 35.7%, Health & Human Services is also 35.7%, and all the rest account for 28.6%.
Not only are there differences in the shares, there are also large differences in the dollars. Some of this is due to LSO focusing exclusively on annually appropriated spending, and some of it
is due to the inconsistencies between LSO and DFM in the fund classi cation of spending.
$2,624.3 35.7%
$2,353.6 35.4%
Education Function
Health & Human Services Function
Public Safety Function
Natural Resources Economic Development General Government
Natural Resources Economic Development General Government
Source: FY 2015 Executive Budget, page A-34
Source: FY 2015 Idaho Legislative Budget Book, page 21
to the FY 2000 value) is 56%. In other words, a very signi cant 11 percentage point drop.
These declines in Education’s share of the state budget are the result of two primary factors: a series of tax cuts enacted since FY 2000 that have signi cantly reduced Idaho’s General Fund revenue stream in relation to the size of its economy, and increases in funding for Health & Human Services.
To see more clearly how these factors have impacted education funding, lets look at the budget gures expressed
as a percentage of Idaho personal income. In today’s terms, one percentage point of Idaho Personal Income is equivalent to about $600 million, and one-tenth percentage point is equivalent to about $60 million. That’s because today Idaho Personal Income is about $60 billion. Using percent of personal income provides a consistent basis for comparing funding levels and changes over time.
And to further simplify the analysis, lets look at decades (70s, 80s, 90s, 00s, and 10s) rather than individual years to reduce noise and more easily show longer trends. The “raw” data is in the following table:
Between the 1970s and the 1990s General Fund total spending increased from 4.7% to 5.7% of Idaho Personal Income. This was made possible by
a series of tax increases that were enacted between 1983 and 1987, and is consistent with current estimates
of the dollar magnitude of those tax increases (see Where The Money Comes From for a detailed breakdown).
Idaho Budget Expenditures, Expressed as Share of Idaho Personal Income
by Fund, Function, and Decade
Decade Average
74 to 79
80 to 89
90 to 99
00 to 09
10 to 14
All Fund Expenditures
Public Schools Higher Ed
4.3% 1.6%
4.4% 1.4%
4.5% 1.4%
4.0% 1.2%
3.7% 1.2%
Health and Human Services
Public Safety
Total (All Functions)
General Fund Expenditures
Public Schools Higher Ed
1.8% 1.3%
2.5% 1.0%
2.8% 1.0%
2.7% 0.8%
2.4% 0.6%
Health and Human Services
Public Safety
Total (All Functions)
Dedicated Fund Expenditures
Public Schools Higher Ed
0.7% 0.1%
0.4% 0.1%
0.2% 0.0%
0.2% 0.0%
0.2% 0.0%
Health and Human Services
Public Safety
Total (All Functions)
Federal Fund Expenditures
Public Schools Higher Ed
0.4% 0.1%
0.4% 0.1%
0.4% 0.0%
0.4% 0.0%
0.5% 0.0%
Health and Human Services
Public Safety
Total (All Functions)
Other Fund Expenditures
Public Schools Higher Ed
1.4% 0.1%
1.1% 0.2%
1.0% 0.3%
0.8% 0.3%
0.5% 0.5%
Health and Human Services
Public Safety
Total (All Functions)
Source: Idaho Executive Budget
The tax increases of the 1980s mitigated what would have been even larger declines in All Fund Total Expenditures, which nonetheless declined from 13.6% of Idaho Personal Income in the 1970s to 13.3% in the 1990s. Why did All Fund Total Expenditures decline three-tenths of a percentage point at the same time General Fund Total Expenditures increased one full percentage point? Because Dedicated Fund Total Expenditures declined 0.5 percentage points (entirely in the Education function), Federal Fund Total Expenditures declined 0.4 percentage points (mostly in
the Other function), and Other Fund Total Expenditures declined 0.4 percentage points (in both the Education and Other functions).
Among other things, those mid-80s tax increases allowed Idaho’s All Funds Education spending to remain relatively stable over the decades of the 80s and 90s at about 6% of Idaho Personal Income. All Funds Public School spending actually gained a bit, going from 4.3% on average in the 70s to 4.4% in the 80s to 4.5% in the 90s. All Funds Higher Education spending declined, going from 1.6%
on average in the 70s to 1.4% in the 80s and 90s.
Idaho’s relatively stable period of education funding ended in roughly 2000, when a period of signi cant tax cutting began. General Fund Total Expenditures fell from 5.7% of Idaho Personal Income in the decade of the 90s to 4.9% on average over the past 5 years. This decline is consistent with current estimates
of the dollar magnitude of tax cuts that were enacted between 2000 and 2013 (see Where The Money Comes From for
a detailed breakdown).
General Fund Education Expenditures took the full brunt of the General Fund tax cuts, declining from 3.9% of Idaho Personal Income on average in the 1990s to 3.1% on average over the past 5 years.
All Funds Education spending as a share of Idaho Personal Income fell from 6% in the 1990s (and 1980s and 1970s)
to 5% over the past 5 years on average. Instead of mitigating the General Fund Education Expenditure decline, Other Fund Education spending compounded the decline, going from 1.3% of Idaho Personal Income in the 1990s to just 1% in the past
5 years. This is consistent with the Risch Property Tax Swap that took $260 million out of Public School M&O levies. Based on current Idaho Personal Income of approximately $60 billion,
All Funds Education Expenditures have declined by about $600 million between the average during the 1990s and the average over the past 5 years.
Drilling down a bit, the cuts to Education funding have been spread over both Public Schools and Higher Education. Looking strictly at the General Fund, both took signi cant reductions from the 1990s to the past 5 years: down 0.4 percentage points in the case of public schools, and down 0.4 percentage points in the case of higher education. But that’s where the similarity ends.
Public Schools
In the case of Public Schools, the General Fund decline of 0.4 percentage points was compounded by an even larger decline of 0.5 percentage points in the Other Fund category. Federal Funds did go up one-tenth point between the 1990s and the past ve years, and Dedicated Funds were unchanged, yielding a total
All Fund decline of 0.8 percentage points (from 4.5 percent of Idaho Personal Income in the 1990s to 3.7 percent on average the past 5 years). This is equivalent to a $480 million reduction in All Funds Public School Expenditures in the last 5 years on average relative to the funding levels during the decade of the 1990s. That’s almost a 20% decline.
We know where the four-tenths point reduction in General Fund Public Schools Expenditures came from (tax cuts), but what caused the ve-tenths point reduction in the Other Fund cat- egory? The short answer, quite simply, is the 2006 Idaho Legisla- tive Special Session. That’s when a single bill was enacted that swapped $260 million of Public School property tax reduction for $210 million of state sales tax increase.
The Other Fund category was supposed to decline by roughly ve-tenths point (that’s where property tax is located in the Public School budget), and the General Fund dollars were supposed to increase by ve-tenths point to hold Public School funding harmless. That almost happened in the year of the swap (General Fund spending for Public Schools increased from 2.4 percentage points of Idaho Personal Income in FY 2006 to 2.8 percentage points in FY 2007), but by FY 2010 General Fund spending for Public Schools had declined to 2.4 percentage points, where it stands today (i.e., FY 2014). In effect, the initial increase in General Fund spending on Public Schools to mitigate the Other Fund spending decline was temporary, and General Fund spending on Public Schools is back where it was the year before the Risch tax swap.
Idaho Public School funding has gone down not only in
relation to its own recent past, but also in relation to other states. According to the National Center for Education Statistics, as of the 2010/2011 school year Idaho’s primary/secondary instruction expenditures per pupil have fallen behind all but
one other state (Utah). In 2000/2001 Idaho was ahead of ve states – besides Utah, they were Arizona,
Arkansas, Mississippi, and Tennessee.
In the 2000/2001 school year Utah’s expenditures per pupil were 81.6% of Idaho’s level. In the 2010/2011 school year Utah’s expenditures were 92.7% of Idaho’s level,
a gain of 11.1 percentage points. In fact, between the 2000/2001 school year and the 2010/2011 school year Idaho lost ground to every other state.
All but 3 states (Indiana, Oklahoma, and
Oregon) had double-digit percentage point gains
on Idaho. Of the surrounding states Montana
gained 40 percentage points (from 17% higher than Idaho to 57% higher), Nevada gained 22 percentage points (from 1% higher to 23% higher), Oregon gained 8 percentage
points (from 32% higher to 40% higher), Utah gained 11 percentage points (from 18% lower to 7% lower), Washington gained 23 percentage points (from 14% higher to 41% higher), and Wyoming gained 95 percentage points (from 37% higher to 132% higher).
So how has this change in funding level for Idaho’s Public Schools impacted Idaho’s Public Schools? In a word, badly. Staf ng levels have shrunk, leading to larger class sizes. Furloughs have shortened the school year. Pay has been frozen, and teacher morale has suffered. In recent years the number of Idaho school districts operating on four day school weeks has grown from 14 in 2010 to 39 in 2013. Some have dropped music programs altogether. Others have dropped athletic programs completely. Fees have gone up for parents, prompting a lawsuit alleging violation of Idaho’s Constitutional promise
of “…free common schools.” And property taxes have gone up dramatically to supplement inadequate state funds.
Higher Education
The budget picture for Idaho’s Higher Education system looks similar to that of Public Schools when examined through the lens of the General Fund. Higher Education is down 0.4 percentage points of Idaho Personal Income from the 1990’s average to
the last 5 year’s average, same as Public Schools. However, the
percentage decline is steeper (40%) because General Fund Higher Education funding levels are substantially lower than General Fund Public School funding levels – 1.0 percent of Idaho Personal Income in the 90s, 0.6 percent of Idaho Personal Income in the past 5 years.
The Other Funds category is where the real differences between Higher Ed and Public School funding show up. In the case of Higher Ed, the Other Funds category moved in the opposite direction, and mitigated the decline in General Fund spending.
The Other Fund Higher Ed category represents primarily tuition and fees, i.e. the costs billed directly to stu-
dents. Other Fund Higher Education spending has actually gone up from 0.3 percentage points of Idaho personal income in the 1990s to 0.5 percentage points of Idaho personal income in the past 5 years. This Other Fund increase offset half of the General Fund decline.
Idaho Public School funding has gone down not only in relation to its own recent past, but also in relation to other states.
The net effect of these funding changes is Higher Education spending from All Funds dropped from 1.4 percentage points of Idaho personal income in the 1990s, to 1.2 percentage points of Idaho personal income on average in the past 5 years. This is equivalent to a decline of approximately $110 million, or about 14%.
The effects on students and their families of the cost shift within Higher Ed funding (from the General Fund to student fees) can be seen in the actual tuition and fees charged by Idaho’s higher education institutions, shown in the table on the right.
This shows that in the past
10 years Idaho undergraduate tuition charges have more than doubled, and have grown at triple the rate of income growth in Idaho. Idaho income growth has barely kept up with in ation over the decade, suggesting it has probably been quite challenging for Idaho residents to absorb the steep increases in tuition.
Source: Idaho State Board of Education, U.S. Department of Commerce, U.S. Department of Labor
Idaho College Tuition vs Per Capita Income and In ation
Undergrad Tuition:
Per Capita Personal Income:
CPI-U In ation
Fiscal Year
Boise State
Idaho State
U of I
Lewis- Clark
Calendar Year
% Increase
% Increase, Annualized
These shifts are not a recent phenomenon, but they have accelerated quite dramatically over the past dozen years (again, coinciding with the series of tax cuts enacted in Idaho since 2000). Here’s a chart showing the sources of Idaho College & University funding since 1980:
Idaho Colleges & Universities Funding Sources
Fiscal General Endowment Year Fund Fund
1980 88.1% 4.7%
1981 86.8% 6.3%
1982 80.3% 6.6%
1983 77.0% 7.2%
1984 78.8% 6.5%
1985 78.5% 5.5%
1986 80.1% 5.3%
1987 80.5% 4.8%
1988 82.3% 4.4%
1989 82.1% 4.4%
1990 82.4% 4.5%
1991 83.2% 4.1%
1992 82.4% 3.8%
1993 80.4% 3.8%
1994 79.2% 3.8%
1995 77.5% 3.3%
1996 76.5% 3.7%
7.0% 13.1% 15.8% 14.7% 16.1% 14.6% 14.6% 13.3% 13.5% 13.1% 12.7% 13.8% 15.8% 17.0% 19.2% 19.8%
Fiscal General Endowment Year Fund Fund
1997 76.9% 3.8%
1998 75.8% 4.1%
1999 75.1% 4.4%
2000 75.0% 4.6%
2001 74.8% 4.5%
2002 75.0% 5.0%
2003 72.6% 4.6%
2004 66.6% 3.7%
2005 65.4% 2.9%
2006 64.1% 2.7%
2007 65.4% 2.0%
2008 66.2% 2.0%
2009 67.4% 2.0%
2010 64.2% 2.4%
2011 58.3% 2.6%
2012 52.9% 2.4%
2013 51.1% 2.2%
19.3% 20.2% 20.4% 20.5% 20.7% 20.0% 22.8% 29.7% 31.6% 33.2% 32.5% 31.8% 30.5% 33.4% 39.2% 44.7% 46.7%
Source: Idaho State Board of Education
In the past third of a century Idaho has gone from tuition accounting for less than 10% of the dollars spent on higher education to almost half coming from tuition. A small portion of this shift has been due to reductions in the Endowment Fund’s share. The bulk of the shift has been due to reductions in the General Fund’s share.
Health & Human Services
Health and Human Services spending in Idaho has been on the rise. It makes up a little over one-third of All Funds spending, up from 25% in FY 2000. It’s up to almost one-quarter of all General Fund spending, from 17% in FY 2000.
Not only has this function seen large increases in its share of All Funds and General Fund dollars, when measured in relation to Idaho’s Personal Income it has seen quite dramatic increases, going from an average of 3% of Idaho Personal Income in the decade of the 90s to 4.5% on average over the past 5 years. General Fund spending on Health and Human Services has also been on the rise, growing from 0.9% of Idaho Personal Income in the 90s to 1.1% over the past 5 years. The largest relative increase has been in the Federal Funds component, which has gone from 1.6% of Idaho Personal Income in the 90s to 2.9% in the past 5 years.
These increases hide something: even though the dollars have gone up at a rapid rate, signi cant cuts have been made to the services delivered to Medicaid recipients. In 2011 over $100 million worth of bene t cuts were enacted, coming primarily from people with serious disabilities. About $35 million of the cuts were reductions from the Idaho General Fund, and over $70 million more were reduced federal matching dollars. Those federal dollars are economic base dollars, so their economic effect is probably at least double (i.e., over $140 million) by the time multipliers work their magic.
An extremely small part of the 2011 cuts were restored the next year, but nothing was added back in 2012 or 2013. Yet there was enough money available in the General Fund to enact $36 million of income tax cuts in 2012, and $20 million more for sizeable reductions in property taxes related to business personal property in 2013.
Signi cant changes are happening at the national level to both Medicaid and the overall health care sector, relegating recent Idaho Medicaid cuts to backburner status. The Patient Account- ability and Affordable Care Act (PAACA, or ACA for short) will increase Idaho’s cost of providing basic Medicaid services (due primarily to more people being covered under mandatory Medic- aid expansion provisions in the ACA), but an optional Medicaid expansion component has the potential to signi cantly reduce Idaho’s cost of providing health care. The optional component is not a feature of the original ACA, but is an outcome of a U.S. Supreme Court ruling on challenges to the constitutionality of the ACA.
Idaho is in a fairly unique situation when it comes to the optional part of Medicaid expansion. Because Idaho pays hospitals for care given to people who can’t pay their bills, and those pay- ments are not given a penny of match from federal dollars, Idaho taxpayers bear the full cost of the taxes needed to pay those hospital bills. They do this through the counties’ property tax indigent funds that pay the rst $11,000 cost per incident, and the state’s Catastrophic Health Care Program that pays costs exceeding $11,000 per incident.
If, under the optional expansion component of the ACA, Idaho expands Medicaid for people in households up to 138% of the federal poverty line, the federal government will pay 100% of the cost to provide health care to the newly eligible Medicaid recipients for the rst three years, then the match phases down to 90% in perpetuity (90% federal, 10% state).
Here’s a table showing the estimated mandatory costs and optional savings:
Idaho Medicaid Expansion Costs Under the Patient Accountability and Affordable Care Act
FY 2016
FY 2017
FY 2018
FY 2019

FY 2025
Mandatory Expansion Net Cost
Optional Expansion Net Cost / (Savings)
State Plan (Managed Care)
Private Insurance (Exchange)
Combined Net Cost / (Savings)
Mandatory Plus State Plan
Mandatory Plus Private Insurance
Source: Milliman Report on Idaho Medicaid Expansion Population and Cost Forecast, Initial Update, 6/18/14
This table shows the estimated savings Idaho taxpayers would realize under two alternatives for the optional component of Medicaid expansion. The initial savings are very large due to the 100% federal match, then taper down to more modest savings levels as the federal match rate phases down to 90%. However, it should be noted that the federal match stays at 90% in perpetuity.
Even though the mandatory costs eventually outweigh the optional savings in the State Plan alternative, the savings continue beyond the forecast horizon. In the case of the Private Insurance alternative the initial savings eventually turn into costs in the out years.
Are There De ciencies In
Idaho’s Budget Process?
There are a number of aspects of Idaho’s budget process that can be considered de ciencies. Examples include inaccurate budget baselines, inadequate time horizons, incomplete expenditure reporting, insuf cient scal impact analysis, and inconsistent labeling across budget agencies.
Inaccurate Budget Baseline
In order for the public to understand what a budget represents
it needs to have a meaningful and consistent baseline. Idaho practices something known as incremental budgeting, wherein
a baseline is established that represents the cost of maintaining public services at current levels, then changes are made to either add or subtract spending associated with speci c services and/ or programs. Without a proper baseline it is dif cult at best, and impossible at worst, to know what is actually
happening to the services and/or programs being budgeted.
In Idaho’s budget process the baseline is a
concept known as MOE, or maintenance of
effort (in years past it was known as MCO,
or maintenance of current operations). The idea
is that the MOE budget captures what it would
cost to continue (in the budget year) the same
level of programs as currently exist. This
maintenance baseline should re ect enrollment,
caseload, and/or workload changes; in ation;
employee compensation and bene t changes; and anything else that changes the cost of continuing current programs at current service levels.
Idaho’s budget does have an element called MOE, but it does not accurately re ect the true cost of maintaining current services. While it does attempt to re ect updated enrollment, caseloads, etc., it does not accurately re ect the prices associated with maintaining public services. In effect, it ignores substantial amounts of in ation and employee-related costs.
Why are these costs important? Because in ation is a real factor that impacts the true total cost of providing public services, and if it is ignored it amounts to a hidden cut in public services. Employee-related costs are similar, in that failing to keep up with prevailing wage rates amounts to hidden budget cuts.
The impact of in ation on agencies that provide public services will vary depending on their speci c inputs, but in the current economic environment overall in ation rates are running in the 2-3% range.
This may not seem like much, but over time it compounds and the impacts can be signi cant. Costs that increase at an annual rate of 3% per year are 15.9% higher after 5 years. Idaho’s Executive Budgets have largely ignored in ation for the past 5 years (FY11-FY15), and provided no employee compensation increases for the past 6 years (FY10-FY15). One of those years, FY 2013, did have a one-time “surplus eliminator” proposal (equivalent to a 3% bonus IF revenue exceeded the Governor’s forecast) in the Executive Budget, and that year did end up with a 2% employee compensation increase enacted by the Legislature. In FY 2015 the legislature provided for a 1% salary increase and 1% for one-time bonuses.
By ignoring in ation and zeroing out employee compensation changes, Idaho’s governor and legislature have effectively cut tens of millions of dollars from Idaho’s budgets over the past half-decade without explicitly identifying the cuts. This makes it impossible for the public to understand the nature and magnitude of these cuts.
A far preferable approach would be to properly account for in ation (preferably at the program and object level), then insert an after-maintenance line item to reduce or zero-out in ation
(if that is what the governor and/or legislature intend). That way the public has a clear picture of the actual cuts that are being made.
Similar concepts apply to the wage elements
of the budget (CEC, or Change in Employee Compensation). Here it is not in ation per se at issue, but changes in prevailing wages. Idaho actually hires the services of a human resources consultancy (HayGroup) to survey other public and private employers to determine prevailing wage levels. Again, those prevailing wages should be factored into the baseline maintenance budget at the program level, then reduced or
removed in an after-maintenance line item if the governor and/or legislature choose to fund a lower level of wages. That way the public will have a clear picture of the dollar amount of compensation underfunding.
As an idea of the cumulative magnitude of these “hidden” cuts, the most recent HayGroup Bene t and Compensation Review (January 2013) found that Idaho’s compensation levels are
on average 29% below the Private Sector, and 10% below the Public Sector.
Inadequate Time Horizon
Budget decisions often have impacts that change over time. This can be because of lags in public awareness and utilization of new programs, or by design through delayed phase-in or phase-out of programs. Regardless the reason, it is widely
held that multi-year budget horizons are essential for providing policy makers and the public with full information relating to the rami cations of budget decisions.
In order for the public to understand what a budget represents it
needs to have a meaningful and consistent baseline.
Idaho does not produce a multi-year budget. It limits the focus to a single year (i.e., the year being budgeted). This can make it dif cult to see the full rami cations of budget decisions that have changing impacts over time.
This lack of a suf cient time horizon in the budget can be particularly misleading when it comes to major tax policy changes, especially when the changes are intentionally phased-in over a multi-year period.
A good example of this is the proposal made in the 2013 legislative session to completely eliminate the business personal property tax over a seven-year period, with replacement funding coming from Idaho’s General Fund. There was no analysis of how the state budget would be impacted by such a phase-in beyond the budget year – FY 2014 – even though the bulk of the revenue impacts occurred in the out years, i.e. after FY 2014.
Prospective changes on the spending side of the budget related to the Affordable Care Act are another real example of why a multi- year budget analysis is imperative. While some of the impacts of the ACA are optional, there are a number of impacts that are not optional and have changing impacts over time.
Incomplete Expenditure Reporting
There are substantial differences between the two main budget documents produced in Idaho – the Executive Budget and the Legislative Budget. The Executive Budget is an attempt to in- clude all spending by state agencies and programs in Idaho, while the Legislative Budget is intentionally limited to spending that is annually appropriated. This in itself is not a de ciency, it is just a different de nition of what the respective budget documents include.
For example, the Department of Labor’s Employment Services budget for FY 2015 is $11.5 million in the Legislative Budget Book, but it is $394.5 million in the Executive Budget. The reason for this difference is the $11.5 million in the Legislative Budget Book is annually appropriated, whereas the additional $383.0 million in the Executive Budget is not subject to annual appropriation, it is continuously appropriated (mostly in the form of federal funds that are used to make unemployment insurance payments).
However, there are de ciencies in the Executive Budget documents related to incomplete reporting of certain agency spending. A good example of this is in the Colleges & Universities component of the budget. This spending category is identical in both the legislative and executive budget documents (i.e., it is strictly annually appropriated amounts), even though signi cant amounts of spending by Colleges & Universities fall into the continuously appropriated category.
This omission of continuously appropriated spending by Colleges & Universities does not appear to have a rational explanation, and because it is so large (almost double the size of the annually appropriated spending) it introduces signi cant distortions in both the Colleges & Universities budget gures and all of the subsequent summations (i.e., Total Education spending and Total spending across all agencies and programs.
Insuf cient Fiscal Impact Analysis
Fiscal notes (attached to bills) are how the scal impacts of proposed legislation are presented to legislators and the public. All bills that have scal impacts are supposed to have a scal analysis presented in the scal note. Unfortunately, Idaho does not have a meaningful scal impact analysis framework incorpo- rated into its overall budgeting process.
Bill sponsors are responsible for providing scal notes, and it is up to committee chairmen to approve or reject scal notes. There is no formal review process in place and there are no standards to insure that the scal notes attached to legislation present an objective, unbiased assessment of a bill’s scal consequences.
A missing element of many scal notes is information related to impacts that change materially over time. This means there can be substantial “hidden” impacts of legislation that are completely ignored.
A recent example of this problem occurred with HB 598 in
the 2014 legislative session. Its scal note simply said “ scal impact is not expected to be signi cant…$2 million to $5 million annually.” Yet the Idaho Tax Commission testi ed that based upon an analysis of several dozen tax returns and audits the impact would be at least $8 million immediately, and rapidly grow to $40 million. The Tax Commission’s testimony was ignored, and the impact gures used in various budget agency reports continued to be the sponsor’s gures.
Another bill in 2014 also demonstrates the problem. HB 546 creates a mechanism for the Department of Commerce to issue “Tax Credit Certi cates” for up to 30% of a business’s income tax paid, sales tax paid, and withholding collected from certain jobs, for up to 15 years. This legislation will clearly have scal impacts that grow rapidly, but the scal note addresses a single year, FY 2015, and based on a single question from a Rev & Tax Committee member, the impact was ipped from negative $3 million to positive $7 million.
Inconsistent Labeling
Another de ciency is inconsistency in how spending is classi ed between the Legislative and Executive budget documents.
The different basis (continuously vs. annually appropriated) notwithstanding, there are variations in how spending is classi ed by Fund category.
Once again, Colleges & Universities serve as a useful (but vexing) example. In the Legislative Budget documents, the Governor’s recommendation for FY 2015 Colleges & Universities spending consists of $251.2 million from the General Fund, and $244.8 million from Dedicated Funds. In the Executive Budget documents the General Fund gure is the same, but the Dedicated Fund gure is just $12.5 million and the Other Fund gure is $232.3 million.
Pointing out this inconsistency may seem nitpicking, but in an already complex set of documents (the Legislative and Executive budget documents) this inconsistency just makes it that much harder for average citizens (and average reporters) to follow the numbers.
What Are Today’s Big Budget Issues?
There are several very important issues in play when it comes to decisions that must be made in the next legislative session when the FY 2016 Idaho budget will be set. Here’s a brief list:
• Education funding in Idaho has been reduced dramatically in the past dozen or so years, with the downward trend continuing into FY 2015. Idaho’s Public Schools have lost an estimated $600 million of funding since 2000, and Idaho’s Colleges and Universities have had substantial cost shifts to students and their families.
• Sharp cuts were made to Idaho’s Medicaid program at the onset of
the Great Recession, and very few of those cuts have been restored as the economy and revenues have recovered.
• Tax cuts have taken a higher priority in the past three years than ‘unfreezing’ state worker pay or restoring program cuts that were ‘necessary’ to deal with recession-induced revenue declines. Now Idaho has well over $56 million less every year to pay for education, health care, public safety, and all the other programs of state government.
• The U.S. Supreme Court decision
that created ‘optional Medicaid expansion’ is still in play, since Idaho failed to act on the issue in the 2013 and 2014 legislative sessions. Idaho’s Governor and Legislature in effect
threw away over $90 million in combined property tax and General Fund revenue savings by not acting in the 2013 and 2014 legislative sessions.
• Idaho’s economic performance has gone from being among the best in the nation to among the worst. There are signi cant questions regarding appropriate public policy responses.
These issues are interconnected. For example, the 2011 Medicaid cuts ($35 million in General Funds and over $70 million in Federal Funds) made in response to under forecasting of revenue eliminated a signi cant amount of exogenous federal matching funds, thereby reducing the level of economic activity in Idaho.
So budget decisions regarding the provision of health care services contributed directly
to Idaho’s declining economic performance. And as of today (Summer 2014) only a small amount of those Medicaid cuts have been restored. At the time they were made, they were billed as “necessary because we just don’t have the funds.” Now, as the funds return, the Medicaid cuts remain but taxes have been cut for three straight years.
Less direct linkages connect education funding policies, education outcomes,
and Idaho’s economy. The State Board of Education has made it’s highest priority increasing the rate at which Idaho students complete a post-secondary degree or certi cate program, yet the cost
to students of attending Idaho’s colleges
and universities has been increasing at rates substantially higher than in ation. At the same time, Idaho employers report dif culty nding quali ed applicants for jobs requiring advanced training and education. And Idahoans’ economic well-being continues to slip farther behind.
Tax cuts have been made in the name of promoting economic expansion, yet there is no credible scienti c evidence proving such policies work, and no evidence whatsoever such policies have improved Idaho’s economic fortunes. There is, however, clear evidence that tax cuts have reduced Idaho’s capacity to deliver public services such as education and health care.
The U.S. Supreme Court decision that created ‘optional Medicaid expansion’ is still in play, since Idaho failed to act on the issue in the 2013 and 2014 legislative sessions. Idaho’s Governor and Legislature in effect threw away $115 million in combined property
tax and General Fund revenue by not acting in the 2013 and 2014 legislative sessions.
It is telling that in past periods of economic and/or revenue challenges, Idaho policy makers actually increased taxes (and hence revenue) not once, but twice in the last half century. These increases were both followed by exceptionally strong economic performance for a decade and a half. In fact, even in 2004 when Idaho temporarily raised its sales tax from 5% to 6% for 2 years, it was accompanied by the fastest economic growth in Idaho in over a decade.
Today’s of cial executive branch policy is “to grow government at a slower rate than the economy,” which is equivalent to saying “shrink public services.” At his point,
with education in FY 2013 at 61% of General
Fund spending, down from 72% in FY 2007, further cuts in education funding at the state level are dif cult to imagine.
FY2007 is a signi cant year for education
funding because it is the rst year after
then Governor Jim Risch called a special
session of the Idaho Legislature to swap a
$260 million property tax cut for a $210
million sales tax increase. The magnitude
of education’s decline in its share of the
General Fund in just six years (see previous
paragraph) is nothing short of stunning, and
it is further compounded by the fact that
thanks to tax cuts, the General Fund share
of Idaho’s economy (as measured relative to personal income) shrank from 6.0% in FY 2007 to 5.0% in FY 2013, a 17% decline over that period.
As Idaho’s personal income in relation to U.S. personal income declines, it will become ever more painful to maintain a steady level of public service funding. In 2006, the peak of Idaho’s economic activity, Idaho’s per capita personal income was 84% of the national average. Seven years later Idaho is at 79.4%, a drop of almost 5 percentage points.
Even worse, in 2006 Idaho per capita income exceeded that of nine other states. Today (as of 2013, the last year of data), eight of those states have surpassed Idaho, and the one that remains below Idaho (Mississippi) has closed over three-quarters of the
gap that existed in 2006. In 2006 Idaho’s per capita income was 10.5 percentage points ahead of Mississippi’s. As of 2013, Idaho per capita income is just 2.0 percentage points ahead of Mississippi’s. This happened through a combination of Idaho losing ground at the same time Mississippi was gaining ground. Over the past quarter-century Idaho has gone from having its per capita personal income grow faster than all but 4 other states (from 1986 to 2006, after a half-billion dollar tax increase),
to slower than all but 3 other states (from 2006 to 2013 after about a dozen years of tax cutting).
The tax cuts since 2000 have come in a quite varied mixture, from ag equipment property tax cuts to income tax cuts via an increased grocery credit. The only common thread is the cuts all contributed to reduced revenue as a share of Idaho’s Personal Income. In FY 2000, before the tax cuts took hold, Idaho General Fund revenue was 6.1% of Idaho Personal Income. Today that percentage has dropped to 5.0%.
Not surprisingly, the revenue decline was closely matched by a similar decline in General Fund spending. That measure went from 5.7% of Idaho Personal Income in
FY 2000 to 4.9% of Idaho Personal Income
in FY 2013. All the 0.8 percentage point decline occurred in Education. These percentage points may
seem like small numbers, but they actually represent very large numbers. In 2013 Idaho Personal Income is estimated to be $55.2 billion. One percentage point of that is $552 million, and one-tenth percentage point is $55 million.
The unprecedented decline in Idaho’s education funding effort will only be compounded by Idaho’s continued preference for tax cuts over restoring the deep cuts already made to spending programs. And with a lack of meaningful scal impact analysis, we won’t really know the impact of those tax cuts until well after their damage to spending programs has been done.
The unprecedented decline in Idaho’s education funding effort will only be compounded by Idaho’s continued preference for tax cuts over restoring the deep cuts already made to spending programs.
Appendix 1: DFM Citizen Guide
Citizens Guide
Financial Terminology
Activity – STARS reporting group for speci c nancial transactions impacting de ned users. Agency – An administrative division of the department or reporting entity for which a budget
Encumbrances – Obligations for expenses incurred in one scal year but not paid until after the end of the same scal year.
request package is submitted, e.g., Department of Finance, DFM, etc.
Expenditures – Cash outlays for items necessary and essential to the operation of the agency but not including encumbrances.
Appropriation – The authority provided by the Legislature to an agency to spend revenues derived from a variety of sources including the state General Fund. Actual cash available in the respective funds also limits spending.
Full-time Positions (FTP) – Full-time and part-time permanent agency staffs who are not part of group or board positions. The number of FTP is normally capped by the Legislature for most state agencies each scal year.
Base – Starting point for development of a scal year’s budget request. The base re ects previous year’s expenditures plus or minus expenditure adjustments and base adjustments.
Function – Grouping of agency activities into areas of like purpose in STARS.
Fund – A unit within the accounting system for collection of revenue and expenditure infor-
Board of Examiners Reduction – A reduction in the appropriation of an agency directed by the State Board of Examiners in consultation with the Division of Financial Management.
mation from speci c sources.
Goal – Focus of agency resources that will support the overall mission of the organization.
Budget and Policy Analysis – The unit within the Legislative Services Of ce responsible for development and presentation of budget and policy information to Legislators.
Governor’s Holdback – Authority given to the Governor to temporarily limit expenditures of agencies due to shortfalls in revenue projections for the scal year.
Budget Unit – Appropriation control mechanism within STARS used to differentiate between appropriated and non-appropriated elements within an agency’s program structure.
Information Technology Resource Management Council (ITRMC) – ITRMC plans and coordi- nates the state’s approach to information technology. Administratively the ITRMC resides in the Department of Administration.
Capital Outlay (CO) – Object class from which expenditures for land, highways, buildings xtures, automobiles, machinery, equipment, and furniture with a useful life greater than two years are recorded.
Legislative Services Of ce (LSO) – Full-time staff who serve the Legislature. LSO includes Budget and Policy Analysis, the Legislative Audits, Research and Legislation.
Capitalized Lease – Multi-year lease of land, buildings, vehicles, computers, machinery, of ce equipment or other property with a useful life greater than two years and in which the ownership of such items is to be transferred to the agency at the end of the lease term.
Line Item – Additional decision units requesting funding for new or expanded activities after maintenance of current operations.
Caseload – Changes Increases or decreases in clients required to be served by state agencies or enrollment numbers in public school or colleges and universities. Caseload changes do not include changes in bene t levels for existing clients.
Lump Sum (LS) – Legislative authority to expend appropriated funds from any Object Class the agency determines appropriate.
Change in Employee Compensation (CEC) – Cost of salary increases for agency personnel. CEC is calculated using form B6 and the calculation factor determined by DFM. CEC is requested in DU 10.61.
Maintenance of Current Operations (MCO) – Resources needed to continue current levels of service.
Continuous Appropriations – Statutory appropriations not set by annual legislative action. Actual expenditures are based on program needs and cash availability.
Noncognizable Funds – Non state funds obtained after appropriations are established and from which expenditures must be made prior to the next legislative session. Use of noncognizable funds must be approved by DFM.
Decision Unit (DU) – A speci c item in the budget request. Decision units are standardized in order that statewide information may be summarized and reported. A table of decision unit categories can be found in Appendix B of this manual.
Object Code (Class) – Categories of expenditures. Object Code Classes include Personnel Costs (PC), Operating Expenditures (OE), Capital Outlay (CO), Trustee and Bene t Payments (TB), and Lump Sum (LS).
De ciency Warrants – Expenditures that are authorized but for which no speci c appropria- tion is provided until after the expense amount is known. Examples include re suppression costs and agricultural pest eradication expenses.
Object Transfers – Movement of funds between appropriated Object Classes. Funds may be moved from Personnel Costs, Operating Expenditures, and Trustee and Bene ts Payments to any other object class. Funds may not be moved into Personnel Costs or out of Capital Outlay without legislative action. All object class transfers require DFM approval.
Division of Financial Management (DFM) – The Division of Financial Management is the Gov- ernor’s Budget Of ce. The Division assists the Governor in developing revenue projections and agency expenditure recommendations for presentation to the Legislature.
Objective – Means to achieve a long-term goal.
Employee Bene t Costs – A budgetary adjustment for changes
(generally increases) in the cost of maintaining a range of employer-paid bene ts for state employees such as Social Security, retirement (PERSI), unemployment insurance, and health insurance.
One-time – Spending authority granted for one budget year only. One-year grants or capital purchases are examples of uses of one-time funding. One-time funding is removed prior to establishment of the base budget for the following scal year.
Operating Expenditures (OE) – Object Class from which expenditures for daily operations of the agency are recorded.
Outcome – Results of program services on the constituent group served. Output – Number of services performed by an activity within a program.
Budget Process
Performance Measurement Report – Agency information regarding completion of targeted performance standards that are part of agency strategic plans. Information is reported in the budget request document on form B3 and B3.1 and compiled as Part III of the Governor’s Executive Budget message.
Within the Division of Financial Management, (DFM) the Budget Bureau is responsible for budget development. Budget development is a continual process throughout the year. It involves the legislative and executive branches with occasional counsel from the judicial branch. The following chart indicates the participants in the budget process.
Personnel Costs (PC) – Object Class from which expenditures for wages, salaries, and bene ts of agency staff are recorded. This includes temporary staff funded in group positions. (Contract temp services are recorded in Operating Expenditures.)
Program – An agency or part of an agency identi ed for budgeting purposes. Programs may be functions or activities within an agency depending on the agency’s STARS structure.
Program Transfers – Movement of funds between more than one budgeted program within an agency. Program transfers are limited to 10% cumulative change from the appropriated amount for any program affected by the transfer.
Reclassify – Upon the request of an agency, a speci c position may be reclassi ed upward or downward as determined by the Division of Human Resources. For example, an agency may request an Administrative Assistant 1 position to be reclassi ed as an Administrative Assistant 2 position.
Reappropriations – Unused funds from a previous scal year available through Legislative action for use in the current scal year. Commonly known as Carryover Authority.
Receipts to Appropriation – Money received from the sale of assets or insurance settle- ments that is added back to the appropriated object class from which the asset was originally acquired.
Refactor – The Division of Human Resources may revise the pay grade for an entire class of positions statewide. For example, the pay grade for all Administrative Assistant 1 positions throughout the state could be refactored from pay grade F to pay grade G. Refactoring re- quires approval from the Division of Financial Management if there would be scal impact.
Rescission – A change to the appropriation that reduces spending authority that is granted by the Legislature in the current scal year.
STARS – STatewide Accounting and Reporting System operated by the State Controller’s Of ce.
State Board of Examiners – A board consisting of the Governor, the Secretary of State, and the Attorney General with the State Controller acting as secretary to the Board. The Board of Examiners reviews all claims against the state.
Statewide Cost Allocation Plan (SWCAP) – State plan for implementing federally approved indirect cost allocation among all state funding sources.
Statewide Goals and Objectives – Structure within STARS used to provide expenditure infor- mation on a statewide functional basis.
Strategy – Action or activity leading to the completion of an objective.
Supplemental Appropriation – A change to the appropriation that adds to, reduces, or adjusts spending authority between Objects that is granted by the Legislature in the current scal year.
Trustee and Bene t Payments (TB) – An expenditure class through which funding for authorized payments can be passed through to eligible individuals (e.g. scholarships, public assistance, retirement bene ts) or to other governmental entities for the provision of services (e.g. intra or intergovernmental contracts, state support for local community
college districts, community development block grants).
Wage and Salary Report (WSR) – A series of reports produced by the Employee Information System Unit of the State Controller’s Of ce which identify wages, salaries and related bene t costs for all budgeted positions and also projects increases in costs for the current and fol- lowing scal years.
Budget Development
The scal year runs from July 1-June 30. Agencies begin preparing their budget request for the next scal year 18 months in advance. For in- stance, for scal year 2010, which begins on July 1, 2009, agencies will prepare their request during July through August 2008. The Division of Financial Management and the Legislative Services Of ce – Budget and Policy Analysis, jointly prepare a “Budget Development Manual” that is sent to agencies in early June.The manual provides guidance on bud- get submittal procedures. This guidance includes detailed information on projected bene t increases, the percentage increase to be used for operating expense in ation, medical in ation, and Change in Employee Compensation (CEC).
Between July and August, agencies work with their assigned DFM budget analyst on the technical details of the budget proposal. In September agencies submit their budgets simultaneously to the Division of Financial Management and Legislative Services Of ce. Throughout October and November, analysts work on technical details and meet with the Governor to present the agencies’ requests and introduce options. The Governor completes his recommendation in early December and the Executive Budget goes to print. The Governor presents his recommendations to the legislature during the rst week of the session that begins in January.
Legislative Appropriations
After the Executive Budget is printed and the Budget Message is given, the appropriation process begins. The Joint Finance-Appropriations Com- mittee (JFAC) begins hearing testimony from agencies on their budget re- quest and the Governor’s Recommendation. After all agencies have been heard, the budget setting process begins. JFAC creates an appropriation bill (legislation) that must pass both the House and the Senate and then must be signed by the Governor. The process –starts over if the bill does not pass both the House and the Senate or it is vetoed by the Governor.
Budget Execution
When passage of the appropriation bill is complete, agencies know what their budget will be for the upcoming scal year and can begin to plan accordingly. On July 1, the new budget will go into effect.
Adjustments to Budgets
Adjustments to budgets are ongoing throughout the year. The Legislature considers adjustments to the current year’s budget through supplemen- tals at the beginning of the budget setting process. DFM budget analysts monitor how spending is going throughout the year. The Governor can make budget adjustments such as holdbacks at any point in a year where revenues are not meeting projections. DFM analysts are authorized by the Board of Examiners to allow agencies to make budget transfers mid-year and to allow for the inclusion of federal grants, etc. that were unknown at the budget-setting time through a noncognizable funds process.
Appendix 2: LSO Budget Process
Budget Process – Budget Flow Chart
Budget Process
The Idaho budget and appropriations process has evolved over time into one of the most streamlined and ef cient state budget systems in the nation. Foremost, our system is based on an approach that shares key elements of authority and responsibility between the Legislative and Executive branches of Government:
• The rules and guidelines that state agencies use to develop their annual budget requests are developed cooperatively between the Governor’s Division of Financial Management and the Legislature’s Budget and Policy Analysis staff.
• Both the Executive and Legislative budget staffs are involved in providing input and assistance to state agencies over the summer months as they develop their new budget requests.
• The agency budget requests, when completed, are required by statute to be submitted on September 1st
simultaneously to the Governor’s Of ce and the Legislature’s Bud- get and Policy Analysis staff.
• The Governor’s Budget Recommendation is featured prominently in the Legislative Budget Book, the primary source document for the Joint Finance Appropriations Committee.
Please see the following for additional detail:
The Budget Flow Chart Statutory Framework Rules
State Budget Processes
Budget Process – Statutory Framework
67-3514. APPROPRIATION BILLS TO BE PREPARED BY JOINT FI- NANCE-APPROPRIATIONS COMMITTEE. The joint committees of the legis- lature in charge of appropriation measures, after considering the budget requests required by Section 67-3502, Idaho Code, and the executive budget as required by Section 67-3506, Idaho Code, shall prepare and introduce appropriation bills cover- ing the requirements of the various departments, of ces and institutions of the state. In the case of any department, of ce or institution operating under a contin- uous appropriation, the joint committee may prepare and introduce appropriation bills covering the requirements for the administrative functions of such department, of ce or institution. The joint committee may, after examining the budget of any department, of ce or institution operating in part or in whole under a continuing appropriation or fund authorized by the legislature, prepare and introduce appro- priation bills covering all the requirements of the respective department, of ce and institution.
67-437. DEPARTMENTS, AGENCIES AND INSTITUTIONS TO SUBMIT INFORMATION. All departments, agencies and institutions of state government which are required by Section 67-3502, Idaho Code, to submit reports of actual and estimated receipts and expenditures to the Division of Financial Management shall submit the same information to the Legislative Services Of ce for the Joint Finance-Appropriations Committee, not later than the deadline prescribed in Sec- tion 67-3502, Idaho Code.
67-3502. FORMAT AND PREPARATION OF ANNUAL BUDGET RE- QUESTS. In the preparation of a state budget, the administrator of the Division of Financial Management shall, not later than the fteenth day of July have avail- able for all departments, of ces and institutions of the state government forms necessary to prepare budget requests. Such forms, whether in electronic or written format, shall be developed by the administrator of the division and the Legislatives Services Of ce to provide the following information:
Budget Process – Budget Rules
1. For the preceding scal year, each of the entities listed above shall report all funds available to them regardless of source, including legislative appropriations, and their expenditures by fund and object of all sums received from all sources, segregated as provided for on the forms.
Rule 1:
Rule Authority: Unless speci c rules to the contrary are adopted by the Joint Committee, the Joint Rules of the Senate and House of Representa- tives will govern the proceedings in the Joint Committee, or in the absence of Joint Rules, Senate Rules will apply. In all cases not covered by rule, and in which they are not inconsistent with Joint Committee Rules, Joint Rules or Senate Rules, the general rules of parliamentary practice and procedure as set forth in Mason’s Manual of Legislative Procedure shall govern the pro- ceedings of the Joint Committee.
2. For the current scal year, each of the entities listed above shall report their estimates of all funds available to them regardless of source including legislative appropriations, and their estimated expenditures by fund and object of all sums received from all sources, segregated as provided for on the forms, including a statement of the purposes for which anticipated funds are expected to be expended.
Rule 2
Chairmanship: Chairmanship of the Joint Committee shall alternate be- tween the Senate Finance Chairman and the House Appropriations Chair- man from day to day. In the absence of both chairmen, the Vice-Chairman of the committee whose chairman was to chair the meeting will preside as Chairman.
3. An estimate of appropriations needed for the succeeding scal year showing each primary program or major objective as a separate item of the request and item- ized by object code.
4. A report concerning the condition and management of programs, program perfor- mance and progress toward accomplishing program objectives.
Rule 3 Rule 4 Rule 5
Necessary Majority: All decisions shall be by simple majority of the quorum present, except decisions to reopen a budget, or to suspend the rules. (See Rules 12 and 16).
The completed forms shall, not later than the rst day of September except with special permission and agreement of the administrator of the Division of Financial Management and the director of Legislative Services Of ce, be led in the of ce of the administrator of the Division of Financial Management and the Legislative Ser- vices Of ce. The legislative and judicial departments shall, as early as practicable and in any event no later than the rst day of November, prepare and le in the of ce of the governor and the Legislative Services Of ce upon the forms described in this section a report of all of the information required in this section.
Roll Call Vote: A roll call vote is required on any motion authorizing expen- ditures of money. (See Rule 11). When a roll call is called for, the members will remain seated until the roll call is completed.
Motions: Only one main motion (original motion) can be pending at one time: however, the main motion (original motion) may be amended (sub- stitute motion) and the amendment may be amended (amended substitute motion). Vote is taken rst on the amended substitute motion; in the event such a motion fails, the vote is taken on the substitute motion; and in the event the substitute motion fails, vote is then taken on the original motion. Privileged motions as listed in Section 176, Mason’s Manual, take precedence over main motions before the committee, i.e. the motion to adjourn, recess, etc. Committee members shall be seated at their desk in order to vote.
The administrator of the division shall, on or before the 20th day of November next succeeding prepare and submit to the governor, or to the governor-elect if there
is one, information for the development of the executive budget as designated in Section 67-3502, Idaho Code, including the requests of the legislative and judicial departments as submitted by those departments.
Rule 6
Speci city of Motions: All motions considered by the Joint Committee shall specify the dollar amounts to be appropriated by agency or program and by source of funding (i.e. general, dedicated, other and federal). Speci ca- tion of standard classes and/or FTP positions may also be included.
Rule 7
Bills Originating in Joint Committee: By majority vote or unanimous con- sent the Joint Committee may report an appropriation bill originating in the Joint Committee to either house “without recommendation” or with a “do pass recommendation.” Recommendations, once made, give authorization for a measure to be introduced in both houses, without being returned for further recommendation or consideration to the membership of the Joint Committee, the House Appropriations Committee or the Senate Finance Committee. In the event, however, an appropriation bill is amended on
the oor to alter the action of the Joint Committee, then such amended bill, after transmittal to the house in which the action remains to be taken, and if referred by the presiding of cer to the Joint Committee, the House Appropriations Committee or the Senate Finance Committee, shall not be automatically referred out of Committee.
reopened for consideration, a simple majority shall be required for approv- al of the supplemental appropriation, or any other changes to the current year appropriation bill.
Rule 8
Other Bills: An appropriation bill or any other bill originating in another committee and referred to the House Appropriations Committee or the Senate Finance Committee, and considered by the Joint Committee, may be reported by majority vote out of the Joint Committee to the appropriate house “without recommendation”, with a “do pass recommendation”, with a “do not pass recommendation”, with a recommendation that it “be amend- ed”, or with a recommendation that it be “referred” to another committee.
Rule 9
Legislative/Committee Intent: Language may be included with any motion to provide directions, restrictions, and/or clari cations with regard to how certain moneys are used. Such language can be adopted as one of two types of intent:
Intent Language in Committee Minutes: Intent language included in any motion shall be read back and explained to the committee by the maker of the motion prior to the vote. Language so adopted shall be set out in the written committee minutes.
ADOPTED: January 12, 1999
Intent Language in Appropriation Bills: Any intent language meant to be included as a part of the appropriation bill shall be submitted in writing to the committee at the time the motion is made. Such written language may be amended or changed by the committee prior to adoption. Language so adopted shall be set out in the written committee minutes and noted that it is included in the appropriations bill.
Rules Commonly Operative in Joint Committee Meetings (from Senate Rules):
Rule 10
Motion to Hold: A Motion to Hold a bill in the Joint Committee, to hold consideration of a budget or to hold the vote on a motion or motions must specify a time certain to which such is to be held.
Motions: No motion shall be debated or voted upon until the same is seconded, when required, and put by the Chair; and, if desired by the presiding of cer or requested by any member, such motion shall be reduced to writing and read before the same is debated or voted upon.
Rule 11 Rule 12
Alteration of Committee Action: An action formally taken by the Joint Commit- tee may thereafter be altered only by formal action of the Joint Committee.
Withdrawal of Modi cation of Motion: Before a motion has been stated by the Chair, its maker may withdraw or modify the same without consent of the second. Once put by the Chair, however, and before amendment or being voted upon, it may be withdrawn or modi ed only with consent of the second.
Rule 13
Supplemental Appropriations: Requests for supplemental appropriations shall rst require unanimous consent, or a two-thirds af rmative roll call vote of the quorum present, to reopen the current year appropriation for that agency or institution requesting the supplemental appropriation. Once
Explanation of Vote: Any member may explain his or her vote when his or her name is called upon a roll call vote, provided such member has not participated in debate and provided further that such explanation shall not exceed one minute duration.
Reconsideration: Any member of the Joint Committee may move to reopen a budget previously established by the Joint Committee prior to the time an appropriation measure has been nally acted upon by the houses into which it is originally introduced, and any member may likewise move to re- open consideration of an appropriation request for which funding has been denied. A two-thirds af rmative roll call vote of the quorum present is necessary to reopen.
Roll Call Vote: Under no circumstances shall a roll call, once ordered, be interrupt- ed except (a) to explain a vote under provisions of Mason’s Manual, Section 528, or (b) for a call to or for order from the Chair.
Rule 14
Reconsideration of Defeated Appropriation: In the event an appropriation bill originating in the Joint Committee is defeated in either house, reconsid- eration by the Joint Committee of an appropriation in replacement thereof shall be by majority vote.
Rule 15
Impacting Legislation: In the event legislation is enacted which changes the nancial requirements of a program for which an appropriation has been established by the Joint Committee (i.e., statutory salary increases, elimination of a statutory duty, etc.), the appropriation may be increased or reduced by majority vote of a quorum present, for the substantive change made by the impacting legislation only.
Rule 16
Sine Die Adjournment: The Joint Committee shall adjourn sine die after consideration has been given to the funding requirement of ALL the statu- torily- created departments, of ces, programs and institutions of the state for which formal requests, made through established channels, have been made. Sine die adjournment shall require a majority of the membership present (there being a quorum) at the meeting. (Ref. Section 67-3514- 3515, Idaho Code).
Rule 17
Suspension of Rules: Rules adopted by the Joint Committee may be sus- pended by a two-thirds vote of the membership (quorum present) of the Joint Committee.
Quorum: The Joint Committee shall not proceed to the transaction of business except upon a quorum being present when the committee convenes, nor thereafter if any member objects to a lack of a quorum. A quorum shall consist of a majority of the committee membership.
Change of Vote: Any member may change his or her vote before the decision of a question shall have been announced by the Chair, but no explanation for such change shall be permitted.
Budget Process – State Budget Process
Buck Slips: Buck slips may be used for committee action on the instruction of or recommendations on bills, but only in instances where committee meetings are impractical. The objection to the use of a buck slip by one committee member shall preclude its use in that instance. All Committee members, who are not absent and excused from attendance on that day, shall be required to sign their names indicat- ing their aye or nay vote on the matter being considered.
From “Fundamentals of Sound State Budgeting Practices” National Conference of State Legislatures
Budget Process – Budget History
Writing a budget for a state government involves the most complicated and con- troversial issue in public life: how the public’s money gets spent. Given the number and variety of interests and issues that have to be reconciled for a budget to be completed, the wonder is that the process moves along as smoothly as it does year after year. But for many observers, it is the competitiveness, compromises and in- complete nature of the process that are striking, not the real accomplishment every annual and biennial budget represents.
1890-1939: Biennial line item agency budget with lines for salaries and wages, travel, printing costs and other current expense, capital outlay and other items with no program breakdown. Legislature reviewed the Governor’s Budget, haphazard hearing process.
Because budgets have so many functions, the process of writing one is often con ict-ridden, unsatisfactory to observers and participants and awed in its out- comes. Budgets seem to increase rather than resolve partisan competition; they sometimes are late; they leave problems unresolved; they spend too much or too little; they may fail to include adequate program review, planning for the future, accounting for past expenses, or controls on planned spending.
1940-1968: Biennial line item agency budget with lines for salaries and wages, travel, printing costs and other current expense, capital outlay and other items with no program breakdown. JFAC gradually develops more formal hearing process to review Governor’s budget recommendation.
1969-1971: Biennial line-item program budget with programs, minor programs, program descriptions and workload indicators.
These complaints have shown up ever since formal, comprehensive budgeting be- came a feature of state and local government in the early years of the 20th century. The Taft Commission, which examined federal budget processes in 1912, criticized federal budgeting procedures for the same aws observers note today. Some of the problems – partisanship, indecisiveness, lack of closure – are inherent in the demo- cratic process. Others spring from con icting expectations of the process. The central function of a budget – the decision of how much to spend for what – will always cre- ate disputes, and no budget will ever satisfy everyone.
1971-1972: First annual line item program budget. The Idaho Legislature also establishes its own budget of ce, as a result of the Governor failing to present a budget to the Legislature.
1973-1975: Program budget with programs, and program descriptions, with an incremental approach that showed the cost of continuing the 1971-1972 level of services and introduced multi-year estimates for 1973-1974 and 1974-1975 scal years.
“The power to tax involves the power to destroy,” said Chief Justice John Marshall, and it is equally true that the power to spend is the power to create. Budgets are documents that express state governments’ power to act. They summarize poli- cymakers’ evaluations of past programs and public agencies and their forecasts of current and future needs and resources. Budgets set goals, decide among alterna- tive objectives, and create means for controlling and accounting for the expendi- ture of public money. They can push reform or they can discourage it.
1976-1978: Program budget with a modi ed form of zero-base budgeting that used different “Levels” of funding; Level I, Level II, or Level III.
1978-1979: Program budget with a pure form of zero-based budgeting for about 25% of the state agencies. The budget contained decision units that built from a zero base, explaining the impacts of each level.
1979-1980: Program budget with a modi ed form of zero-based budgeting. About 25% of state agencies were required to build a budget request starting at a base of 70% of their current appropriation.
I. Evolution of State Budget Processes
1981-1994: Program based budget; program descriptions and workload indica- tors.
A. Line-Item Budgeting Line-item budgeting represented the earliest attempts at institutionalizing a budget process and bringing some kind of order to state gov- ernment expenditures. Control is expressed in written budgets through “line items”, which are simply statements or “lines” in an appropriation bill which simply de ne how much money can be spent for certain “items”, whether its road equipment
1994-1997: Governor’s recommendation integrated into the Legislative Budget Book. Program based budget, with requirements to submit performance reports in the budget process as a result of the passage of the Strategic Planning Act in 1995.
for the Transportation Department, sh hatchery raceways for Fish and Game or Drug Enforcement Agents for the Department of Law Enforcement. State Legisla- tors have indicated a certain comfort with this approach in the past because it is restrictive in terms of de ning expenditures and setting limits, and it is also simple to explain in terms of where the taxpayer’s money is going. However, while Line- item budgeting provided the essential ingredients of order and control it does not address issues of performance, quality and accountability.
1998-present: Program based budget, summarized at the agency level, with increased emphasis on performance indicators from agencies’ Strategic Plans, and issue analysis and supportive information in addition to budget request information.
B. Incremental Budgeting Incremental budgeting focuses attention on additions or deletions to the existing structure of state government. This budget approach usu- ally takes for granted previous appropriations and structure, focusing on year to year in ationary changes, and building by small increments on past budget decisions.
speci c line items, that the goals of those programs be laid out in measurable terms, and that performance review becomes central to budget decisions.”
The incremental approach guides the discussion of budget decisions toward what money can buy, called an “input”, versus the quality of the service that is provided, an “outcome”. While it is certainly true that the quality of services in state govern- ment can be questioned in an incremental budget, it remains a fact of life in any budget process decision making that the format will have large and direct impact on policy discussions. “These practices are under attack because they are said to foster a business-as-usual approach to government at a time when the public is challenging how state governments operate, questioning their ef ciency and effectiveness, and expressing distrust of representative government itself. With growing concern about how well government functions, many people contend that the traditional focus on line-item budgeting and incremental change neglects outcomes so much that the budgeting process itself is an impediment to effectively delivering programs.”
Performance Budgeting is currently the hot topic in state budget development. It
is beginning to turn up in various forms in several states, particularly the strategic planning aspect of this process; setting goals and objectives. The most dif cult part of Performance Budgeting up to this point has been in identifying meaningful mea- surements of performance. It is easy to quantify workload; but much more dif cult to measure quality which requires a context of public satisfaction, productivity, cost bene t, and fairness. The other two dif culties, once you have meaningful mea- surements in place are; how do you reward performance in the budget process and how do you sanction poor performance. Are State Legislatures expected to “hard code” budget decisions into a performance budget process on automatic pilot and thus surrender oversight.
C. Program Budgeting Program budgeting places considerable emphasis on designing a budget architecture that groups expenditures and sources of funds
into functional activity categories. In program budgeting terminology, a function is simply a group of related activities for which a governmental unit is responsible. The classi cation structure used in each government unit is a product of scal, organi- zational, and political considerations. The second Hoover Commission recommended that agencies should “synchronize their organization structures, budget classi ca- tions, and accounting systems.” If this were accomplished, both organizations and budgets would be structured functionally and tied together. This is a key aspect of program budgeting. For instance, the Idaho Department of Fish and Game is divided into eight major programs along functional lines. One of those programs, the Fisher- ies program, is then broken down into smaller units, such as Resident Fisheries and Anadromous Fisheries, then each of those functions in turn is broken down into smaller units; etc.; etc. Program-based budgeting allocates resources by function, which in turn are divisible into activities. The evolution and development of program budgets was a vast improvement to the state budget process, because it provided some functional perspective for decision makers. By organizing budgets into func- tional units the focus quite logically turned to the function itself and the delivery of services. The framework in this decision-making process begs the question, “what do you do and why do you need this money to do it?”. The program budget formats in many states then began displaying goals and activities of a program to answer those questions, which then evolved into an examination of “workload measures” and the beginning of a serious evaluation of “performance measures”.
“Advocates contend that the dif culty of implementing a performance-based budget is evidence of how thoroughly state government needs to be reformed. They say that the dif culty of agreeing on goals for programs is evidence that the evidence that the issue has been neglected, and the process of trying to reach agreement will produce valuable analysis and debate. The dif culty of measuring performance has to be faced squarely. How else can anyone know whether government is pro- viding needed services? How else can public con dence in government be rebuilt?”
D. Performance Budgeting Performance Budgeting developed as a natural progression from Program Budgeting as Governors and Legislatures began looking at state government functionally. Performance Budgeting emphasizes the outcome of state programs, and attempts to measure the performance of state government, reward programs that work well, and redesign programs that do not work well.
“State programs are not, in practice, amenable to such radical annual re-examina- tion. Statutes, obligations to local governments, requirements of the federal govern- ment, and other past decisions have many times created state funding commitments that are almost impossible to change very much in the short run. Education funding levels are determined in many states partly by state and federal judicial decisions and state constitutional provisions, as well as by statutes. Federal mandates require that state Medicaid funding meet a speci c minimum level if Medicaid is to exist at all in a state. Federal law affects environmental program spending, and both state and federal courts help determine state spending on prisons. Much state spending, there- fore, cannot usefully be subjected to the kind of fundamental re-examination that ZBB in its original form envisions. No state government has ever found this feasible. Even Georgia, where Governor Jimmy Carter introduced ZBB to state budgeting in 1971, employed a much modi ed form.”
“Performance-based budgeting calls for a revolution in how states are governed. It focuses on setting goals, designing the strategies needed to meet the goals, and measuring how well they are met. Future funding decisions should focus on pro- gram effectiveness, not on the preservation of existing programs and levels of spend- ing. This approach requires that budgeting be directed at programs rather than at
E. Zero-Based Budgeting Zero-Based Budgeting (ZBB) began in the private sector in a formal sense with Texas Instruments in the late sixties. The popularity of zero-base budgeting (ZBB) spread to state government in Georgia in the early seventies under then-Governor Jimmy Carter who then introduced it at the federal level with his election in 1976. The appeal of Zero-Based budgeting lies in its name mostly, and the expectations it creates. In its pure form the process actually does not work very well in the state budget process. Basically, ZBB starts at point zero every year for all funding decisions. The budget, for all intents and purposes starts from scratch every year for both existing and proposed new programs. Individual programs and activities in a state agency are then prioritized in their importance, and from the ground up all of these units are considered as building blocks in the budget. The intent of ZBB is to take no previously funded programs for granted, re- quiring that every program emerge through a competitive looking glass which asks the question, what are the consequences of not funding this program?
The positive aspects of ZBB for states that experimented with this very tough- minded process were that many programs for the rst time received some close scrutiny. Secondly, the intent of this budget process survived in varying forms as many states adopted certain aspects of Zero Based Budgeting that worked within that particular state’s existing process. Examples of this include prioritizing new budget requests across programs within an agency; developing one-time expendi- ture policies or the “sun-setting” of certain programs, and developing alternative options or levels of funding for accomplishing a goal.
F. Idaho’s Line-item, Incremental, Program Based, Modi ed Zero-Based Performance Budget As the section title implies, somewhat tongue in cheek, Idaho like many states has developed a budget process over the years that bor- rows aspects of several approaches in governmental budgeting.
1. Our process is line-item to the extent that expenditure categories are de ned in the approrpriation bill; Personnel Costs, Operating Expenditures, Capital Outlay, and Trustee/Bene t Payments.
2. Our process is incremental in that it accepts previous funding decisions in es- tablishing a “base budget” on which to build for the coming year; and provides mechanisms to allow in ationary increases and program enhancements to exist- ing programs.
3. Our process is Program-based in that all budget information is structured by pro- gram with emphasis on goals and objectives by function.
4. Our process is Performance-based in that performance measures are listed in the Legislative Budget Book and the state agency Strategic Plans are submitted with the Budget request documents.
5. Our process has elements of a Zero-based approach through encouraging one- time expenditures and sunsetting of programs, zeroing those expenditures out of the budget base each year.
II. Annual versus Biennial Budgeting States are split about evenly on whether they conduct their budget process every year, or whether they set a two-year bud- get cycle. In the past fty years, as State Legislatures around the country wanted more input and control in the budget process, many states opted to change from a biennial cycle to an annual cycle. The issue was oversight and control. In a biennial cycle the Legislature was out of the loop after setting a two-year budget, surren- dering a great deal of management and control to the executive branch. Idaho went from biennial system to an annual system in 1971, and created its own bud- get of ce to elevate its professional capabilities in the budget process. The current reform thinking around the country is to take a second look at biennial budgeting. Two states returned to biennial budgeting recently, ostensibly as a means to allow more time for planning, review and evaluation. No one has been able to clearly make their case that one system offers more positives than the other.
“In reality, a state can develop a good system of executive and legislative scal and program planning and controls under either an annual or biennial budget. The success of a budget cycle seems to depend on the commitment of state of cials to good implementation rather than on the method itself.”
01 House Administration 102 Legislative Council
02 Portfolio Investment 185 Liquor Division, State
01 Military Management
03 Federal/State Agreements 06 Bureau of Homeland Security
10 Management Services 20 Division of Prisons
07 Natural Resource Policy
08 Winter Feeding & Habitat Improvement
110 Judicial Branch
01 Supreme Court Operations
02 Law Library
03 District Court
04 Magistrates Division
05 Judicial Council
06 Court of Appeals
07 Guardian Ad Litem
08 Drug & Mental Health Courts 31 Snake River Basin Adjudication
192 Women’s Commission, Idaho 10 ICWP (Administration)
10 Prisons Administration 21 ISCI – Boise
22 ICI – Orofino
23 NICI – Cottonwood
198 Drug Policy, Office of
01 Office of Drug Policy 02 Substance Abuse
131 Uniform Laws, Comm. on State 01 Uniform Laws
140 Controller, State 01 Administration
200 Administration, Department of
10 Idaho Correctional Center
20 Correctional Alternative Placement 30 County and Out-of-State Placements 40 MedicalServices
34 Div. of Family & Community Services
01 Children’s Services
02 Foster Care and Residential Payments 03 Service Integration
02 Statewide Accounting 03 Statewide Payroll
04 Computer Center
01 02
Office of the Director
01 Office of the Director
02 Administrative Rules
Division of Information Technology
01 Office of the Chief Information Officer 02 Information Technology Resource
231 Correctional Industries
90 State Manufactured Goods
41 Licensure & Certification
51 Medically Indigent Administration 61 Indirect Support Services
72 Mental Health Services
150 Treasurer, State 01 Treasury
Management Council Division of Public Works Purchasing
Office of Insurance Management
232 Pardons and Parole Commission 10 Pardons and Parole
02 Millennium Fund 160 Attorney General
03 04 05 06 11
01 Community Mental Health 02 State Hospital North
03 State Hospital South
05 Children’s Mental Health 06 Community Hospitalization
05 Special Litigation
240 Department of Commerce and Labor 01 Employment Service
02 Wage and Hour
03 Nursing Workforce Center
10 State Legal Services 170 Super. of Public Instruction
Capitol Commission Bond Payments
Appendix 5: Program Codes DEPARTMENT/AGENCY/PROGRAM CODES For DFM and LSO Budget Development Systems
STARS Agency/Function/Activity/Structure LEGISLATIVE BRANCH
100 Senate
01 Senate Administration 101 House
183 Public Employee Retirement System 01 Administration
215 Soil and Water Conservation Commission
10 Soil and Water Conservation Commission
250 Finance, Department of
01 DepartmentofFinance
01 Legislative Services
02 Office of Performance Evaluations 03 Redistricting
04 Legislative Technology
01 Liquor Dispensary
187 Aging, Idaho Commission on
220 Department of Commerce 10 Commerce
260 Fish & Game, Department of 01 Administration
120 Lieutenant Governor
01 Office of the Lieutenant Governor
199 Energy Resources, Office of 01 Energy
30 Division of Education and Treatment
10 Offender Programs
20 Community-Based Treatment Svcs.
32 Medical Assistance
01 Administration and Management 02 Basic Medicaid Plan
03 Enhanced Medicaid Plan
04 Coordinated Medicaid Plan
130 Secretary of State
01 Secretary of State
40 Commission for Pardons and Parole 50 Contract Services
06 State Department of Education
74 Developmental Disabilities Svcs.
01 Community Developmental Disabilities 02 Southwest Idaho Treatment Center
210 Agriculture, Department of 10 Administration
04 Employment Services – CIS
05 Human Rights Commission
06 Serve Idaho and other services 12 Wage and Hour (cont)
180 Financial Management, Division of 01 Financial Management
20 Animal Industries
30 Agricultural Resources 40 Plant Industries
50 Agricultural Inspections
91 Domestic Violence Council
92 Developmental Disabilities Council
181 Governor, Office of the
01 Governor’s Administration 03 Governor’s Expense
04 Governor Elect Transition 13 Governor Acting Pay
50 CDA Basin Commission
70 Waste Mgmt. & Remediation 90 INL Oversight
01 Services for Older Persons 189 Blind & Visually Impaired, Comm
02 Enforcement
03 Fisheries
04 Wildlife
05 Communications 06 Engineering
10 Services to the Blind 190 Military Division
230 Correction, Department of
10 Division of Management Services
194 Human Resources, Division of 10 Personnel Services
24 SICI – Boise
25 IMSI – Boise
26 St. Anthony Work Camp 27 PWCC – Pocatello
28 SBWCC – Boise
270 Health & Welfare, Department of 12 Physical Health Services
195 Species Conservation, Office of 01 Species Conservation
01 Physical Health Services
02 Emergency Medical Services 03 Laboratory Services
04 Substance Abuse Services
196 Arts, Comm. on the
03 Commission on the Arts
25 Division of Community Corrections 40 Community Supervision
50 Community Work Centers
31 Self-Reliance
01 Self-Reliance Program
02 TAFI/AABD Benefit Payments
55 Indemnity Programs (cont) 60 Marketing and Development 70 Animal Damage Control
80 Sheep Commission
245 Environmental Quality, Dept. of 01 Administration and Support 10 Air Quality
20 Water Quality
280 Insurance, Department of
30 InsuranceRegulation
50 Division of State Fire Marshall
02 CommunityServices
03 Institutions
04 Substance Abuse Services
285 Juvenile Corrections, Department of 01 Administration
516 Special Programs
01 Forest Utilization Research 02 Idaho Geological Survey 03 Scholarships & Grants
290 Transportation Department, Idaho 01 Administration
501 503
Education, State Board of
01 State-wide Needs
02 OSBE Administration
03 Charter School Commission Professional-Technical Education
01 State Leadership & Technical Asst. 02 General Programs
02 Planning
03 Motor Vehicles
04 Highway Operations
05 Capital Facilities
06 Contract Construction & Right of Way 07 Aeronautics
08 Public Transportation
360 Water Resources, Department of 10 Management and Support 20 Planning/Technical Services 50 Water Management
04 Museum of Natural History
05 Small Business Development Centers 06 Idaho Council on Economic Education 08 Tech Help
421 Pharmacy, State Board of
10 Pharmaceutical Regulation
300 Industrial Commission 01 Compensation
422 Accountancy, State Board of 10 Accounting Regulation
04 Community Colleges
05 College of Southern Idaho 06 North Idaho College
07 College of Western Idaho College & Universities
523 Vocational Rehabilitation
02 Vocational Rehabilitation
05 Work Services Community Supported
02 Rehabilitation 03 Crime Victims 04 Adjudication
423 Dentistry, State Board of 01 Dental Practice Act
06 Council Deaf & Hearing Impaired 08 Renal Disease
425 Medicine, State Board of 10 Medical Licensing
System-wide Expenses Boise State University Idaho State University
320 Lands, Department of 01 Administration
426 Nursing, State Board of 10 Nursing Board
University of Idaho
Lewis Clark State College
03 Forest Resources
04 Land, Range, and Minerals 07 Fire Management
09 Scaling Practices
427 Occupational Licenses, Bureau of 01 Licensing Programs
514 515
900 Public Utilities Commission
04 PublicUtilitiesCommission
322 Endowment Fund Investment Bd. 01 Endowment Investments
434 Outfitters and Guides
10 Outfitters & Guides Programs
01 02 03 04 05 06 07 08
WI Veterinary Medicine WWAMI Medical Education IDEP Dental Education Univ. of Utah
903 Catastrophic Health Care
01 CatastrophicHealthCare
435 Veterinary Medicine, Board of
10 Board of Veterinary Medicine
330 Police, Idaho State 01 Director’s Office
440 Lottery, Idaho State
01 Lottery Commission
Family Practice Residency WICHE
Boise Internal Medicine Psychiatry Residency
905 State Independent Living Council 01 SILC
02 Investigations
03 Patrol
04 Law Enforcement Programs
05 Peace Officers Standards and Training 06 Support Services
07 Forensics
10 Executive Protection
441 Hispanic Commission 01 Hispanic Programs
331 Brand Inspector 01 Brand Board
01 Service to Veterans 450 Building Safety, Division of
990 Capital Budget
03 CapitalBudget
332 Racing Commission, State 01 Racing Commission
02 Building Safety
521 Libraries, Idaho Commission for
01 LibraryServices 522 Historical Society, State
340 Parks & Recreation, Department of 01 ManagementServices
02 Operations
03 Capital Projects
01 Historical Preservation & Education
341 Lava Hot Springs Foundation 07 Lava Hot Springs
Public School Support
10 20 30 40 50 60
Administrators Teachers Operations Children’sPrograms Facilities
351 Tax Appeals, State Board of 01 Tax Appeals
Deaf and Blind, Bureau of Educ. Svcs.
352 Tax Commission, State 10 GeneralServices
01 02
Idaho School for the Deaf/Blind Outreach Services
20 Audit and Collections 30 RevenueOperations 40 PropertyTax
70 Northern Idaho Water Rights Adjudication
03 Post-Secondary Programs 04 Underprepared Adults
05 Related Services Community Colleges
520 Public Broadcasting
01 Idaho Public Broadcasting
424 Engineers/Land Surveyors, Bd of Prof 01 Board of Prof. Eng. & Land Surveyor
Agricultural Research/Ext.-U of I
02 Agricultural Research & Extension Health Programs
429 Real Estate Commission 10 Real Estate Regulation
442 Examiners, Board of
05 Board of Examiners
950 Public Health Districts
01 Public Health Districts
443 Appellate Public Defender, State 01 Appellate Public Defender 444 Veteran’s Services, Division of
Boise, Idaho 83702
(208) 297-3974
© 2014. Material in this document may be reproduced with acknowledgment of the Idaho Center For Fiscal Policy.
The Idaho Center for Fiscal Policy is a non-pro t, non-partisan organization dedicated to providing our state’s citizens and elected of cials with fact-based information and analysis to help make informed policy decisions that will shape Idaho’s future for generations to come.
The Idaho Center for Fiscal Policy (“ICFP”) is funded by a grant from the Northwest Area Foundation and is housed at Mountain States Group in Boise, Idaho.
Design and layout by Deguz Designs.

Read More

Need for Long-Term Housing Solutions Reflected in Assistance Programs

Facing More Unanticipated Dollars, Policymakers Must Invest in Idahoans